New South Wales Supreme Court CITATION : McGrath & Anor re HIH Insurance Ltd & Ors [2005] NSWSC 731 HEARING DATE(S) : 20/07/05 JUDGMENT DATE : 20 July 2005 Equity Division JURISDICTION : Corporations List JUDGMENT OF : Barrett J DECISION : Orders under s.80 of the Supreme Court Act 1970 that 41 applications under s.477(2B) of the Corporations Act 2001 (Cth) be heard in the absence of the public CATCHWORDS : PRACTICE AND PROCEDURE - whether applications should be heard in the absence of the public - ex parte applications by liquidators for approval of making of agreements by them - agreements relevant to conduct of separate proceedings in which recoveries sought by liquidators from third parties - need upon such applications to disclose matters of a highly sensitive and confidential kind about the separate proceedings - public interest in due and orderly conduct of windings up for benefit of creditors - public interest in administration of justice in the separate proceedings - whether these outweigh public interest in open justice in relation to hearing of liquidators' applications for approval Corporations Act 2001 (Cth), s.477(2B) LEGISLATION CITED : Supreme Court Act 1970, s.80 R v Chief Registrar of Friendly Societies; Ex parte New Cross Building Society [1984] Ch 227 Re Parker decd; Bagots's Executor and Trustee Co Ltd v King [1948] SASR 141 CASES CITED : Re Timberland Ltd; Commissioner for Corporate Affairs v Harvey [1980] VR 669 Scott v Scott [1913] AC 417 Southern Cross Pipelines Australia Pty Ltd v Michael [2002] WASC 171 Anthony Gregory McGrath and Christopher John Honey in their capacity as liqiuidators of HIH Insurance Ltd & Ors - Applicants PARTIES : FILE NUMBER(S) : SC 1799/01; 1805/01; 1808/01; 1810/01; 3753/02; 1798/01; 1800/01; 1803/01; 1804/01; 1806/01; 1807/01; 1809/01; 1811/01; 1812/01; 1813/01; 1814/01; 1815/01; 2650/01; 4727/01; 4913/01; 2601/02; 4096/02; 4098/02; 4472/02; 1348/03; 2419/03; 2421/03; 2422/03; 2423/03; 2424/-3; 2425/03; 2426/03; 4227/03; 4229/03; 4231/03; 4232/03; 4233/03; 4235/03; 4236/03; 4237/03 COUNSEL : Mr M.B. Oakes SC/Ms J.A. Soars - Applicants SOLICITORS : Blake Dawson Waldron - Applicants LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J WEDNESDAY 20 JULY 2005 APPLICATIONS OF ANTHONY GREGORY McGRATH AND CHRISTOPHER JOHN HONEY IN THEIR CAPACITY AS LIQUIDATORS OF EACH OF 1799/01 - HIH INSURANCE LTD 1805/01 - FAI INSURANCES LTD 1808/01 - FAI GENERAL INSURANCE CO LTD 1810/01 - HIH CASUALTY AND GENERAL INSURANCE LTD 3753/02 - HIH INVESTMENT HOLDINGS LTD 1798/01 - FAI TRADERS INSURANCE CO PTY LTD 1800/01 - WORLD MARINE AND GENERAL INSURANCES PTY LTD 1801/01 - HIH UNDERWRITING AND INSURANCE (AUS) PTY LTD 1803/01 - LANLEX NO. 65 PTY LTD 1804/01 - FAI LEASING FINANCE PTY LTD 1806/01 - CIC INSURANCE LTD. 1807/01 - FAI INVESTMENTS PTY LTD 1809/01 - FAI OVERSEAS INVESTMENTS PTY LTD 1811/01 - HIH OVERSEAS HOLDINGS LTD 1812/01 - FAI FINANCIAL SERVICES LTD 1813/01 - FAI OVERSEAS HOLDINGS PTY LTD 1814/01 - FAI REINSURANCES LTD 1815/01 - HIH UNDERWRITING AND AGENCY SERVICES LTD 2650/01 - HANNAN & CO PTY LTD 4727/01 - NOTESTIR PTY LTD 4913/01 - FIRST MENTOR GROUP PTY LTD 2601/02 - WORLDWIDE WEATHER UNDERWRITING AGENCIES (AUS) PTY LTD 4096/02 - HIH COMPANY LTD 4098/02 - ACN 006 495 987 PTY LTD (FORMERLY INDUSTRIAL REHABILITATION SERVICES PTY LTD) 4472/02 - CIC GENERAL INSURANCE HOLDINGS LTD 1348/03 - FAI HOME SECURITY HOLDING PTY LTD 2419/03 - ACN 005 312 345 PTY LTD (FORMERLY READY PLAN ASIA PACIFIC PTY LTD) 2421/03 - FAI FILM DISTRIBUTION PTY LTD 2422/03 - FAI WORKERS' COMPENSATION (VIC) PTY LTD 2423/03 - HIH (REAL ESTATE) PTY LTD 2424/03 - INTEGRATED COMMERCIAL FINANCE PTY LTD 2425/03 - INNES OWENS PTY LTD 2426/03 - RISKCORP AUSTRALIA PTY LTD 4227/03 - ACN 006 584 103 LTD (FORMERLY READY PLAN GROUP LTD) 4229/03 - MARINE AND AVIATION MANAGEMENT SERVICES LTD ACN 006 385 584 4231/03 - CIC WORKERS' COMPENSATION (NSW) LTD 4232/03 - CIC INVESTMENTS LTD ACN 004 766 081 4233/03 - PEMBROKE SECURITIES LTD ACN 002 799 546 4235/03 - LAKE CRACKENBACK RESORT PTY LTD ACN 003 379 708 4236/03 - 422 COLLINS STREET PTY LTD ACN 005 807 036 4237/03 - FAI FINANCE CORPORATION PTY LTD ACN 053 262 561 JUDGMENT - On application under section 80 of Supreme Court Act 1 Before the court is an application under s.80 of the Supreme Court Act 1970 that the hearing of the several interlocutory processes filed in court this morning by Mr McGrath and Mr Honey be conducted in the absence of the public. There are 41 interlocutory processes. Each has been filed in the winding up proceeding affecting one of the 41 companies which I shall call the "HIH companies". I have directed that they be heard together as they raise common issues in a common factual situation affecting the several windings up. 2 Each application is an application by the liquidators of one of the HIH companies for the approval of the court under s.477(2B) of the Corporations Act 2001 (Cth) to enter into a series of agreements on behalf of that company. The agreements will not be fully performed within the period of three months after they are made. They are, because of that timing feature, agreements to which a liquidator may not commit the relevant company without the approval of the court, the committee of inspection (if there is one) or a resolution of creditors. This is the effect of s.477(2B). 3 The antecedent application under s.80 of the Supreme Court Act is prompted by what the liquidators regard as the highly sensitive and confidential nature of the subject matter and content of the agreements in respect of which approval will be sought and the context in which those agreements are to be made. It is sufficient to say, at this point, that they are agreements relevant to the initiation and conduct of certain legal proceedings by HIH companies involving claims for damages against persons outside the HIH group, based on causes of action that, in the liquidators' opinion, are available to those companies because of circumstances which arose before the commencement of the windings up. 4 The prejudice the liquidators apprehend, if the s.477(2A) applications are heard in public, does not arise from disclosure of the existence of the litigation proposals and the details of the causes of action. Nor does it arise from the circumstance that the proposals may come to the notice of the proposed defendants. The liquidators have already put those persons on notice of the relevant claims, including by way of communication of the content of statements of claim that have already been filed. The concern is rather that the hearing of the s.477(2B) applications will, of necessity, involve the adducing of evidence and the making of submissions detailing steps that the liquidators have it in mind to take in and preparatory to the litigation, being steps which, in the ordinary course of events, a plaintiff would keep closely confidential and on no account communicate to a defendant. 5 It is readily accepted by the liquidators that there is a strong and clear public interest in open justice and that, except in exceptional circumstances, proceedings in this court should take place in public. The rule was said in Scott v Scott [1913] AC 417 to be fundamental, but was also described as not inflexible. Circumstances in which the public interest in the open administration of justice may yield to some higher interest were described by Viscount Haldane LC in that case: "A mere desire to consider feelings of delicacy or to exclude from publicity details which it would be desirable not to publish is not, I repeat, enough as the law now stands. I think that to justify an order for hearing in camera it must be shown that the paramount object of securing that justice is done would really be rendered doubtful of attainment if the order were not made." 6 I have been directed to the judgment of Heenan J of the Supreme Court of Western Australia in Southern Cross Pipelines Australia Pty Ltd v Michael [2002] WASC 171 in which the question of suppression of certain evidence about a commercial agreement arose. I quote from his Honour's judgment: "In litigation of this kind, unless prior application has been made to restrain publication, it seems very probable that details of contractual relationships which would otherwise have been confidential will be revealed. The mere fact that that occurs, or even that it may have some economic consequences for the parties, does not, in my opinion, justify the Court from departing from the well tried and prudent rule that judicial proceedings should be conducted in public and that the public should have full access to the reasons for decision given by the Court." 7 A view perhaps not altogether consistent with that was expressed by Mayo J in Re Parker decd; Bagots's Executor and Trustee Co Ltd v King [1948] SASR 141: "With a matter initiated in the same manner as the present, the question whether the summons be heard in chambers or in court is specifically reserved for the discretion of the judge. … I have in mind an action that was tried not very long ago in which a trade rival of one of the parties had a representative in court throughout the whole hearing. He followed the evidence with close attention. Where the circumstances of a business are involved, and all parties desire to avoid publicity, it seems to me proper, in the absence of any valid reason to the contrary, to exercise the discretion, that I have referred to, in a way that will give effect to their wishes." (The discretion, of course, was the discretion to hear the proceedings in the absence of the public.) 8 In the end, and as is recognised not only in the speech of Viscount Haldane LC already quoted but also in the judgment of Sir John Donaldson MR in R v Chief Registrar of Friendly Societies; Ex parte New Cross Building Society [1984] Ch 227, the real determinant is the requirements of justice. The Master of the Rolls referred to Scott v Scott and continued: "The guidance which I get from their Lordships' speeches can be summarised as follows. The general rule that the courts shall conduct their proceedings in public is but an aid, albeit a very important aid, to the achievement of the paramount object of the courts which is to do justice in accordance with the law. It is only if, in wholly exceptional circumstances, the presence of the public or public knowledge of the proceedings is likely to defeat that paramount object that the courts are justified in proceeding in camera. These circumstances are incapable of definition. Each application for privacy must be considered on its merits, but the applicant must satisfy the court that nothing short of total privacy will enable justice to be done. It is not sufficient that a public hearing will create embarrassment for some or all of those concerned. It must be shown that a public hearing is likely to lead, directly or indirectly, to a denial of justice." 9 It was accepted in the New Cross Building Society case that a public hearing would have defeated the purpose of the proceedings themselves. It was that factor which justified an order that the proceedings be heard in the absence of the public. 10 In the present case, I see two other public interests as competing with the public interest in the open justice. The first is the public interest in the due and beneficial administration of the estates of insolvent companies under the Corporations Act by liquidators appointed by and answerable to the court, that administration being for the benefit of creditors. The public interest in the due administration of the insolvent estates of the HIH companies is particularly pronounced where there are many thousands of creditors from all walks of life. The liquidators are officers of the court and are entitled to have the court appropriately facilitate such actions as they may properly take in the interests of creditors and in the furtherance of the public interest to which I have just referred. 11 The second competing public interest arises from the fact that the agreements in respect of which application is made under s.477(2B) are agreements concerned with the pursuit of litigation. All the actions in contemplation are actions in this court. There is a clear public interest in the due administration of justice in that litigation. The liquidators who propose to pursue it for the benefit of creditors should, as a general matter, have an expectation that they will be able to do so free from distortions of a kind that would not arise if the litigation were pursued by an ordinary litigant in the ordinary way. Unlike ordinary litigants who pursue litigation in the ordinary way, liquidators in the position of the present applicants are required to come to the court to seek approval if and when it becomes appropriate for them to enter into contracts not to be performed within the space of three months. Were it not for that requirement and for the supervision of the Court in that respect, the liquidators would, like other litigants, merely go ahead and enter into the agreements to which the confidentiality concerns relate. 12 The administration of justice is, in my view, very likely to be prejudiced in two ways by availability to the potential defendants of (and any public airing of) the information concerning the liquidators' proceedings that will inevitably be divulged by the adducing of evidence and the making of submissions on the hearing of the s.447(2B) applications. There is a likelihood of a real and negative impact upon the due and orderly conduct of the proposed proceedings themselves, in that the defendants in them will have access to information that, in the ordinary course, a plaintiff is entitled to keep confidential in the plaintiff's own interests. Any such access would produce an undue distorting effect in relation to the due conduct of those proceedings themselves. There is also a likelihood of a real and negative impact upon the due conduct of the several windings up by the court in the interests of the creditors of the respective companies. Although there have been changes in the legislative landscape since the decision of Marks J in Re Timberland Ltd; Commissioner for Corporate Affairs v Harvey [1980] VR 669, I think it is still generally true to say, as his Honour there said, that "[t]he winding up is by the court which for the purpose the liquidator is". In saying this, I do not mean to imply that a liquidator in a court ordered winding up enjoys some privileged position, as compared with any other litigant; merely that the fact that a winding up is a winding up by the court means that it in its own right an aspect of the process of the administration of justice. 13 In the particular circumstances of the present s.477(2B) applications, I am satisfied that the two aspects of the public interest which compete with the public interest in the maintenance of open justice should be regarded as outweighing that latter interest. The special circumstances of the liquidators and the statutory functions they perform, coupled with the need for them to come to court on this occasion to seek leave in a way that an ordinary litigant does not have to seek, sets the case apart in such a way that justice will best be served by an examination of the matters the liquidators are bound to raise with the court in an atmosphere where they can lay them before the court fully and frankly and without any apprehension that the interests they are bound to serve will thereby be prejudiced. Applying the terminology used by Viscount Haldane LC in Scott v Scott, I am of the opinion that the paramount object of securing that justice is done in both the proceedings instituted by the liquidators' filing of statements of claim and the respective windings up will really be rendered doubtful of attainment if an order under s.80 is not made. 14 In each of the 41 proceedings, therefore, I will make an order pursuant to s.80 of the Supreme Court Act 1970 that the hearing of the interlocutory process filed in court today seeking approval under s.477(2B) of the Corporations Act be conducted in the absence of the public. ********** 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.