Supreme Court New South Wales Medium Neutral Citation: Commonwealth Bank of Australia v ACN 076 848 112 Pty Limited [2015] NSWSC 666 Hearing dates: 22 May 2015 Decision date: 01 June 2015 Before: Ball J Decision: 1. The balance of the plaintiff's amended notice of motion filed on 19 May 2015 be dismissed. 2. The notice to produce and subpoena filed by the plaintiff on 21 April 2015 be set aside. 3. The plaintiff pay the first defendant's costs of the amended notice of motion. Catchwords: CORPORATIONS – voluntary administration – deeds of company arrangement – Corporations Act 2001 (Cth) s 444E – leave sought by creditor to bring proceedings against company subject to deed of company arrangement – creditor seeking production of insurance policies – whether production of policies justified by case management principles – whether production of the policies in the interests of justice Legislation Cited: Bankruptcy Act 1966 (Cth) Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Fair Trading Act 1989 (Qld) Law Reform (Miscellaneous Provisions) Act 1946 (NSW) Rules of the Supreme Court of Queensland Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)) Uniform Civil Procedure Rules 1999 (Qld) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Beneficial Finance Corporation Limited v Price Waterhouse (1996) 68 SASR 19 Company Solutions (Aust) Pty Ltd v Keppel Cairncross Shipyard Limited (In Liq) [2004] QSC 379 Glaister v Banwell Pty Ltd (Subject to a Deed of Company Arrangement) [2003] WASC 101 Kirby v Centro Properties Limited (ACN 078 590 682) [2009] FCA 695 Lampson (Australia) Pty Limited v Ahden Engineering (Aust) Pty Limited [1999] 2 Qd R 252 Lehman Brothers Australia Ltd v Wingecarribee Shire Council [2009] FCAFC 63 Lopez v Star World Enterprises Pty Ltd (unreported, 18 April 1997, BCA 9702215) Re A J Benjamin Ltd (in liq) [1969] 2 NSWLR 374 Re Gordon Grant and Grant Pty Ltd (1982) 1 ACLC 196 Treadstone Developments Pty Ltd Wever Family Trust v The Salisbury Group Pty Ltd [2014] QSC 109 Category: Procedural and other rulings Parties: Commonwealth Bank of Australia ACN 123 123 124 (Plaintiff) ACN 076 848 112 Pty Limited (formerly known as Colliers International Consultancy & Valuation Pty Limited) (First Defendant) Andrew Willsford (Second Defendant) Representation: Counsel: P Dowdy (Plaintiff) D L Williams SC | D Weinberger (First Defendant) Solicitors: Ashurst (Plaintiff) Johnson Winter & Slattery (First Defendant) File Number(s): 2014/370161 Publication restriction: Nil Judgment Introduction 1. By an amended notice of motion filed on 19 May 2015, the plaintiff (the Bank) sought leave under s 444E(3) of the Corporations Act 2001 (Cth) to proceed against the first defendant, which is the subject of a deed of company arrangement (DOCA). The Bank also seeks access to documents disclosing details of the first defendant's professional indemnity insurance. In addition, the Bank has served a notice to produce and subpoena, both filed on 21 April 2015, seeking access to those documents, which the first defendant has sought to set aside. Background 1. In the proceedings, the Bank alleges that the first defendant and one of its employees, Mr Andrew Willsford, the second defendant, were negligent and engaged in misleading and deceptive conduct in contravention of what was then ss 52, 53 and 53A of the Trade Practices Act 1974 (Cth) (as the Competition and Consumer Act 2010 (Cth) was then known) and of what was then ss 38, 40 and 40A of the Fair Trading Act 1989 (Qld) in connection with a valuation they prepared in September 2006 of a residential development in Airlie Beach, Queensland. The Bank contends that on the faith of the valuation it advanced funds to the developer of the project who subsequently defaulted on the loans. The Bank appointed receivers who in August 2010 sold the development leaving a shortfall of almost $98 million. The Bank claims that shortfall from the defendants in these proceedings. 2. Following commencement of the proceedings, the first defendant went into voluntary administration. It subsequently entered into the DOCA with its creditors. Under the terms of the DOCA, the Bank is limited to recovering its loss from the proceeds of any professional indemnity policy the first defendant holds in respect of any liability it may have to the Bank. Similarly, the first defendant's costs of the proceedings are to be paid from defence costs available under any such policy. The DOCA makes it clear that any amount paid in respect of the first defendant's liability or alleged liability and any amount paid to defend the Bank's claim are not to be paid from other funds belonging to the company. 3. It is noteworthy that the agreement recorded in the DOCA in relation to the payment of the proceeds available from the first defendant's professional indemnity insurance in respect of the Bank's claim reflects the position that would have existed if the Bank had not agreed to the DOCA and the first defendant had been placed into liquidation. In that event, s 562 of the Corporations Act would have required the liquidator to pay to the Bank any amount received from the first defendant's insurers in respect of its liability to the Bank to the extent necessary to discharge that liability. 4. Mr Dowdy, who appeared for the Bank, submitted that there was a "stream of authorities" that established that the Court had power and will generally require the production of insurance policies relevant to a claim in respect of which leave is sought to proceed against a company in liquidation or in administration and that similar principles applied where leave was sought under s 444E(3). Those authorities included Re Gordon Grant and Grant Pty Ltd (1982) 1 ACLC 196; Lopez v Star World Enterprises Pty Ltd (Federal Court of Australia, Olney J, 18 April 1997, unreported); Glaister v Banwell Pty Ltd (Subject to a Deed of Company Arrangement) [2003] WASC 101; Company Solutions (Aust) Pty Ltd v Keppel Cairncross Shipyard Limited (In Liq) [2004] QSC 379 and Treadstone Developments Pty Ltd Wever Family Trust v The Salisbury Group Pty Ltd [2014] QSC 109. 5. According to Mr Dowdy, that proposition was also supported by decisions where the court had refused to order production of insurance policies in different circumstances and on which Mr Williams SC, who appeared for the first defendant, relied. So, for example, in Lehman Brothers Australia Ltd v Wingecarribee Shire Council [2009] FCAFC 63, the Full Court of the Federal Court of Australia, overturning the decision of Rares J, refused to order the production of insurance policies in advance of the second meeting of the creditors of the appellant which was in administration under Part 5.3A of Corporations Act. It was submitted in that case that the insurance arrangements may have been relevant to the consideration by the creditors of resolutions that could be put at the second meeting, including a possible resolution that the creditors of the company adopt a DOCA that would extinguish the entitlement of the respondent to claim damages from the appellant and its directors: at [6]. In holding that the respondent was not entitled to access to the insurance documents, the Full Court said: It is also important to note that no application has been made under s440D(1)(b) of the Corporations Act for leave to proceed other than in respect of the application for the production of the insurance documentation. Therefore the approach taken by Olney J in Lopez v Star World Enterprises Pty Ltd [1997] FCA 454 is not of application here. Olney J was there considering (admittedly in the context of a representative proceeding) a leave to proceed application where the existence and ambit of insurance would be a relevant matter in the determination of that application. 1. Similarly, in Kirby v Centro Properties Limited (ACN 078 590 682) [2009] FCA 695, Ryan J refused to order the production of insurance policies in circumstances where the proceedings before him had been referred to mediation and it was submitted that production of the policies was required to permit the applicant to evaluate or to agree to any proposal which might be made at the mediation: at [6]-[7]. In holding that that was not a proper ground on which to compel the production of the insurance policies, his Honour distinguished cases where the terms of a policy of insurance were held to be relevant to the exercise of a judicial discretion such as applications for leave to proceed against an insolvent respondent under s 471B of the Corporations Act or s 58(3)(b) of the Bankruptcy Act 1966 (Cth) or applications for declaration of a priority charge under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW): at [14]. 2. Normally, the court requires production of the policy before the application for leave is heard, but in some cases courts have been willing to order production at the time of giving leave. Lopez, Glaister and Treadstone Developments are examples. 3. In order to understand the authorities relied on by Mr Dowdy, it is necessary to put them in context. The requirement of leave to proceed against a company in liquidation or administration or subject to a DOCA is a mechanism by which the limited resources of the company are not wasted on unnecessary court proceedings, particularly where other mechanisms are available for assessing a creditor's claim and admitting it to proof where it has merit. 4. In determining whether leave should be given, it will often be relevant to know whether the company is insured in respect of the claimed liability and the terms of the insurance. As Street J explained in Re A J Benjamin Ltd (in liq) [1969] 2 NSWLR 374 at [376]: It is also relevant and admissible to recognize that the respondent is insured, because it is in the hope of recovering under the insurance policy that presents the prospect of the applicant's claim being fruitful. If there were no prospect of surplus assets in the company, and no question of insurance, then that alone might well provide a reason for refusing leave to proceed with what would ex hypothesi be merely an empty action. 1. However, in the present case, it is difficult to see how the terms of any insurance can affect the question of leave. The first defendant is known to be insured. Its insurers have not denied liability and it may be inferred that they have taken over the defence of the Bank's claim. The DOCA has been drafted on that basis. The Bank seeks leave. Under the terms of the DOCA, the deed administrators are required to give their consent to any order sought by the Bank under s 444E(3) for leave; and the deed administrators give that consent. The payment by the company of any legal costs, settlement or judgment will have no effect on other creditors since each of those payments, to the extent that they will be made, will be made by the insurers. In those circumstances, at the hearing of the matter on 22 May 2015 I gave leave to the Bank to proceed, but reserved the question whether the documents it sought in relation to the first defendant's insurance cover should be produced. It is that question with which the rest of this judgment is concerned. Should the first defendant be required to produce documents relating to its insurance cover? 1. Mr Dowdy submitted that the Bank was still entitled to the documents it sought. That entitlement was consistent with cases such as Lopez, where production of documents relating to the defendants' insurance arrangements had been ordered at the same time as the court granted leave to proceed. If the production of the documents were only relevant to the question whether leave should be given, then there would be no point in ordering production at the same time as giving leave. Moreover, the underlying rationale for the requirement of leave justified an order for production. The Bank should not be put in a position where it incurs substantial costs only to find that it has, to use the words of Street J, pursued "an empty action" because any amount to which the first defendant might be entitled under the applicable insurance policies is exhausted by defence costs. 2. I do not accept Mr Dowdy's submission. 3. It is accepted that the existence and terms of the first defendant's insurance arrangements are not relevant to any issue in the case. For the reasons I have given, the terms of the insurance arrangements were not relevant to the question whether leave should be given either. Mr Dowdy submitted that, even if the parties consented to the grant of leave, it was still a matter for the Court whether to grant leave or not. That is undoubtedly correct. However, where the interest of other creditors are unaffected by the grant of leave, the Bank seeks leave and the deed administrators consent to leave being given, there is no reason why it should not be given. It is unnecessary to consider the terms of the first defendant's insurance arrangements in those circumstances. 4. As I have said, Mr Dowdy also relies on the fact that courts have been prepared to order the production of insurance policies even though production is plainly not required in order to determine whether leave should be granted. Moreover, Mr Dowdy submitted that the Bank still required access to the first defendant's insurance arrangements to determine whether it should exercise the leave that it has sought and been given. 5. As to the first of these points, as Mr Williams pointed out, a number of the authorities on which Mr Dowdy relies turn on the particular rules that govern discovery in proceedings before the Supreme Court of Queensland. Order 35 r 14(4) of the Rules of the Supreme Court Queensland (now replaced by r 223 of the Uniform Civil Procedure Rules 1999 (Qld)) gives the court power to order disclosure of a particular document or class of documents where "there are special circumstances and the interests of justice require it", even if the document or documents are not "directly relevant to an allegation in issue in the cause" (the normal test of discovery that applies in Queensland). In some cases, the Supreme Court in Queensland has relied on that rule to order discovery of an insurance policy, even though it may not be directly relevant to the issues in the case. Lampson (Australia) Pty Limited v Ahden Engineering (Aust) Pty Limited [1999] 2 Qd R 252 (a case in which production was sought for the purposes of a mediation) and Treadstone Developments (concerning leave to proceed against a company in liquidation) are examples. In the latter case, Daubney J said (at [50]): Adopting a similar approach to that of Douglas J in Company Solutions (Aust) Pty Ltd v Keppel Cairncross Shipyard Limited (in Liquidation), it seems to me that the form of the policy held by the first defendant is of great practical relevance to the plaintiff for the further conduct of this proceeding. There seems to be no doubt that an insured's policy exists and is in the possession of the liquidators. Those matters are sufficient special circumstances which, together with the interest of justice, require disclosure of the policy. [Footnote omitted] 1. However, the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) contain no provision similar to Order 35 r 14(4) of the Queensland Rules of the Supreme Court. UCPR r 21.2(4) specifically provided that an order for discovery "may not be made in respect of a document unless the document is relevant to a fact in issue". 2. It has been suggested that an order for the production of documents relating to a defendant's insurance arrangements may be justified by modern case management principles such as those embodied in ss 56-61 of the Civil Procedure Act 2005 (NSW). Section 56(2) requires the court to give effect to the overriding purpose set out in s 56(1) (that is, to facilitate the just, quick and cheap resolution of the real issues in the proceedings) when it exercises any power given to it by the Act or rules of court. Section 58 states that in making any order of a procedural nature, the court must seek to act in accordance with the dictates of justice. In its amended notice of motion, the Bank specifically relies on s 61, which relevantly provides: The court may, by order, give such directions as it thinks fit (whether or not inconsistent with rules of court) for the speedy determination of the real issues between the parties to the proceedings. That section is largely repeated in UCPR r 2.1 (on which the Bank also relies), which provides: The court may, at any time and from time to time, give such directions and make such orders for the conduct of any proceedings as appear convenient (whether or not inconsistent with these rules or any other rules of court) for the just, quick and cheap disposal of the proceedings. In addition, the Bank points to cases where a defendant has been required to produce its insurance policy, even though production is not authorised by an equivalent of Order 35 r 14(4) of the Queensland Rules of the Supreme Court. 1. However, in Beneficial Finance Corporation Limited v Price Waterhouse (1996) 68 SASR 19, the Full Court of the Supreme Court of South Australia (Perry and Lander JJ; Cox J dissenting) rejected the notion that case management principles could justify an order for production of an insurance policy that was not discoverable in accordance with the rules of court. The Full Court, of course, was not concerned with ss 56-61 of the Civil Procedure Act. But there is no reason to think that a different approach should apply in New South Wales. Section 61 and UCPR r 2.1 do permit the court to dispense with the requirements of the rules. However, it is apparent that those provisions are concerned with a resolution of the proceedings in accordance with the Court's processes. In my opinion, they are not concerned with other means by which the proceedings might be resolved – such as through a settlement. It is difficult to see how an order in effect requiring discovery of material that the rules specifically say is not discoverable will bring about a speedy or "just, quick and cheap" resolution of the proceedings through the Court's processes. The fact that in other circumstances other courts have been willing to order the production of insurance policies in connection with an application for leave does not relieve the court of the obligation to identify a basis under New South Wales law on which production can be ordered. 2. Mr Dowdy submits that production of the documents is in the interests of justice because unless it knows the first defendant's insurance position, it cannot know whether the claim is worth pursuing. Consequently, it is appropriate to order production of the policy in conjunction with an order giving leave to proceed. But there are a number of difficulties with this submission. 3. First, the submission does not address the question of the basis of the power. 4. Second, the submission confuses the question of leave with the exercise of that leave. The purpose of the requirement of leave is to protect the company and derivatively its creditors from unnecessary court proceedings. It is not to assist the plaintiff to determine whether it should pursue the proceedings or to protect the plaintiff from unwisely doing so. 5. Third, it is not obviously in the interests of justice that the Bank should know the extent of the first defendant's insurance for the purpose of determining whether or not to pursue the proceedings. Knowledge of how much a defendant is willing or able to pay in relation to court proceedings is obviously of considerable tactical advantage to the plaintiff. One advantage is that it may be relevant to the question whether the proceedings are worth pursuing. More often, though, it will assist the plaintiff in settlement negotiations because the plaintiff will not have to discount the amount for which it is prepared to settle to take account of the risk that it will recover less if it pursues its case to judgment than if it settles because any judgment it obtains will not be recoverable. To the extent that the plaintiff enjoys that tactical advantage, the defendant and its insurers suffer a corresponding disadvantage. As Lander J pointed out in Beneficial Finance Corporation (at 42), it is for reasons such as that that the insurance arrangements of a defendant are generally regarded as confidential. The Bank did not articulate any reason in this case why in the interests of justice the court should seek to give it a tactical advantage by requiring the disclosure of confidential documents. It may be that disclosure of the first defendant's insurance policies will bring about an earlier settlement at an amount that does not have to be discounted because of the uncertainties associated with recovery of any judgment. But that alone does not mean that it is in the interests of justice to require disclosure. 6. Fourth, and related to the third point, although the Bank puts its needs in terms of a need to know whether it is worth pursuing the claim at all, it is doubtful that that is its principal motive. The insurers have not denied liability. They are defending the claim. It is apparent from the evidence that the Bank was at pains to preserve its rights to pursue the claim under the DOCA. It can be inferred that the claim is not pointless from the Bank's point of view. The real question to which the insurance arrangements are relevant is at what point the Bank should seek to settle the claim and how much it ought to accept in settlement. For the reasons I have given, I do not see why it is in the interests of justice for the insurance policies to be disclosed for those purposes. Orders 1. The balance of the Bank's amended notice of motion should be dismissed. The notice to produce and subpoena filed by the plaintiff on 21 April 2015 should be set aside. 2. The notice of motion was almost entirely concerned with the question of access to the first defendant's insurance policies. The first defendant has been successful on that issue. In those circumstances, the plaintiff should pay the first defendant's costs of the amended notice of motion. ********** 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. Decision last updated: 01 June 2015