Criminale v TRN Security Services Pty Ltd (In Liq)

[2008] NSWSC 562

CITATION:	Criminale v TRN Security Services Pty Ltd (In Liq) [2008] NSWSC 562
HEARING DATE(S):	26/05/08
JUDGMENT DATE :	11 June 2008
JURISDICTION:	Equity
JUDGMENT OF:	Barrett J
DECISION:	Leave under s 500(2) refused
CATCHWORDS:	PROCEDURE - preliminary discovery - to ascertain identity of potential defendant insurer - insured is company now in liquidation - plaintiff has pre-liquidation judgment against company - whether discovery may be sought against company as distinct from its liquidator - CORPORATIONS - winding up - possession of company's pre-liquidation books - whether possession with company or with liquidator - whether claim for preliminary discovery maintainable against company as distinct from liquidator - whether leave to proceed against company should be granted
LEGISLATION CITED:	Corporations Act 2001, ss 9, 474, 486, 500(2), 511(1)(b), 530A(1), 530B Uniform Civil Procedure Rules 2005, rules 5.2, 5.5, 21.1(1), 21.3
CATEGORY:	Principal judgment
CASES CITED:	AVS Australian Venue Security Services Pty Ltd v Criminale [2006] NSWCA 368 Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; (2005) 220 CLR 592 Harvey v Smith as liquidator of Normans Wines Ltd [2003] SASC 232 Re Barned’s Banking Co; Ex parte Contract Corporation (1867) 2 Ch App 350 Re Contract Corporation (1872) 7 Ch App 207 Re Jet Corporation of Australia Pty Ltd (1985) 9 ACLR 641 Re North Brazilian Sugar Factories (1887) 37 ChD 83 Williamson v Chamberlain [2006] NSWSC 178
PARTIES:	Ricky John Criminale - Plaintiff TRN Security Services Pty Ltd (In Liquidation) - Defendant
FILE NUMBER(S):	SC 2127/08
COUNSEL:	Mr E W Young - Plaintiff Mr J D Chard - Defendant
SOLICITORS:	CMC Lawyers - Plaintiff Paul Bard Lawyers - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

WEDNESDAY 11 JUNE 2008

2127/08 RICKY JOHN CRIMINALE v TRN SECURITY SERVICES
PTY LTD (IN LIQUIDATION)

JUDGMENT

1 The defendant (which I shall call “TRN”) has been, since 7 February 2007, subject to creditors voluntary winding up under the Corporations Act 2001 (Cth). The plaintiff seeks leave under s 500(2) of that Act to continue with certain proceedings initiated in the Common Law Division by summons filed on 21 November 2007. It no doubt wishes to have also leave retrospectively to commence the proceedings.

2 It is desirable that s 500(2) be set out:

“After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.”

3 By the summons filed on 21 November 2007, the plaintiff claims relief against three persons. They are a firm of insurance brokers as first defendant, the liquidator of TRN as second defendant and TRN itself as third defendant. The principal order sought is:

“An order that the First Defendant and/or the Second Defendant and/or Third Defendant give preliminary discovery to the Plaintiff within 28 days of the following documents:-
a) All insurance policies (including any accompanying schedules) issued to Australian Venue Security Services Pty Ltd (ACN 089 022 248) and in force for the period 1 January 2000 to 30 December 2000;
b) All insurance policies (including any accompanying schedules) issued to Australian Venue Security Services Pty Ltd (ACN 089 022 248)) and in force on 8 July 2000.”

4 It appears from search materials in evidence that TRN’s name was formerly “A.V.S. Australian Venue Security Services Pty Ltd”. This is presumably the company intended to be referred to in the summons. The ACN corresponds with that of TRN.

5 It was made clear by Mr E W Young of counsel, who appeared for the plaintiff on the present application, that the plaintiff’s claim is advanced by reference to rule 5.2 of the Uniform Civil Procedure Rules 2005 which, so far as presently relevant, is in these terms:

(1) This rule applies if it appears to the court that:
(a) the applicant, having made reasonable inquiries, is unable to sufficiently ascertain the identity or whereabouts of a person ( the person concerned ) for the purpose of commencing proceedings against the person, and
(b) some person other than the applicant ( the other person ) may have information, or may have or have had possession of a document or thing, that tends to assist in ascertaining the identity or whereabouts of the person concerned.

(2) The court may make either or both of the following orders against the other person:
(a) an order that the other person attend the court to be examined as to the identity or whereabouts of the person concerned,
(b) an order that the other person must give discovery to the applicant of all documents that are or have been in the other person’s possession and that relate to the identity or whereabouts of the person concerned.


…

(8) An application for an order under this rule is to be made:
(a) if it is made in relation to proceedings in which the applicant is a party, by notice of motion in the proceedings, or
(b) in any other case, by summons.”

6 The plaintiff’s application under this provision of the Uniform Civil Procedure Rules is prompted by the circumstance that the plaintiff obtained a judgment for damages against TRN in the District Court for personal injury suffered in 2000. The judgment was obtained by default in November 2002. There was an application for an order setting aside the default judgment but that application was unsuccessful, as was a subsequent appeal to the Court of Appeal: AVS Australian Venue Security Services Pty Ltd v Criminale [2006] NSWCA 368. The plaintiff apprehends that TRN carried insurance in respect of claims of the kind successfully pursued by him in the District Court proceedings. If such insurance existed, the plaintiff may wish to proceed against the insurer.

7 The indebtedness of TRN arising from the earlier proceedings had not been satisfied when the winding up of TRN commenced on 7 February 2007. It remains unsatisfied.

8 In March 2007, the plaintiff’s solicitors approached the liquidator of TRN asking for a copy of all relevant insurance policies maintained by TRN at the time of the plaintiff’s injury in 2000.

9 On 27 March 2007, the liquidator wrote to TRN’s former director requiring him to deliver the books and records of the defendant. A like notice had been given at an earlier time. No compliances with such notices were reported by the liquidator to Australian Securities and Investments Commission.

10 The liquidator wrote to the plaintiff’s solicitors on 4 April 2007 stating that he had been made aware that TRN “currently maintains/maintained” public liability and workers compensation insurance, particulars of which (by reference to insurer and policy number) were given. The liquidator also wrote on the same day to TRN’s insurance brokers seeking details of policies held by TRN at the time of the incident involving the plaintiff. He told the plaintiff’s solicitors that he would pass on these details when received.

11 On 10 May 2007, the liquidator sent a follow up letter to the insurance brokers.

12 On 15 May 2007, the liquidator of TRN wrote to the plaintiff’s solicitors giving information received from solicitors for the insurance brokers about a particular “broadform liability” insurance policy for the period 5 December 2002 to 5 June 2004. On 28 May 2007, the liquidator wrote again and gave details of eight further insurance policies, including, in each case, the insurer’s name and the policy number.

13 On 7 June 2007, the plaintiff’s solicitors wrote to TRN’s liquidator referring to the letter of 15 May 2007 and asking for “the said policy documentation as a matter of urgency”. The liquidator, fearing that voluntary delivery of copies of insurance documents might jeopardise the insurance cover, replied on 13 June 2007 saying:

“I advise that I will produce the insurance documents mentioned in my earlier correspondence only upon receipt of a Notice to Produce, in proceedings to which the relevant insurance company has been joined and notified.”

14 The plaintiff’s solicitors wrote to TRN’s liquidator on 22 June 2007. The letter read in part as follows:

“The relevant policy we are interested in is CN:BI/PXXXXX .
You will note that the insurer is listed as 100% Lloyds of London.
Please immediately advise the exact corporate entity with which Australian Venue Security Services Pty Ltd held their insurance policy.
We require the exact corporate identity of the insurer.
There are a multitude of Lloyds insurance entities and it is essential that we commence our application for preliminary discovery against the correct entity.
We accordingly request the ACN number and the exact name of the insurer who held the policy referred to in your correspondence as 100% Lloyds of London.
Please provide the above as a matter of extreme urgency and should you not have the relevant details, please obtain them from the relevant broker.”

15 On 28 June 2007, the liquidator sent a copy of this letter to the defendant’s insurance brokers with a request that the requested particulars be provided.

16 As I have said, the plaintiff filed the Common Law Division summons on 21 November 2007 naming TRN as third defendant and its liquidator as second defendant. On 11 February 2008, the court made orders in the Common Law Division proceedings which included an order that the second defendant liquidator “produce documents in relation to and including insurance policies in his possession from 1 January 2000 to 30 December 2000 insured [sic] to Australian Venue Security Services Pty Ltd”.

17 The liquidator produced documents in response to this order on 25 February 2008. He says in an affidavit sworn on 25 March 2008 and filed in the Common Law Division proceedings that he did not have in his possession, power or control any other documents in answer to the order. In an affidavit sworn on 23 May 2008 and filed in these current proceedings, he says that that is still the case.

18 The liquidator has also produced evidence that TRN has no realisable assets. This is apparently conceded by the plaintiff. The liquidator further says that he considers himself to have been very co-operative in response to the requests made by the plaintiff’s solicitors; and that those requests have forced him to incur considerable expense which he has had to meet personally.

19 It is relevant to note again that the plaintiff seeks to proceed separately against both TRN’s liquidator as second defendant and TRN itself as third defendant under the Common Law Division summons. It is also relevant to note that the order sought by reference to rule 5.2 of the Uniform Civil Procedure Rules is, in each case, an order that the particular defendant “give . . . discovery of” particular documents.

20 Rule 5.2 appears in Part 5 of the Uniform Civil Procedure Rules. Rule 5.5, also within Part 5, is in these terms:

“Division 1 of Part 21 applies to and in respect of the discovery and inspection of documents the subject of an order for discovery under this Part in the same way as it applies to the discovery and inspection of documents the subject of an order for discovery under that Division.
Note. See also rule 23.8 with respect to inspection of property.”

21 Having regard to rules 5.2 and 5.5, the effect of any order for discovery made in the Common Law Division proceedings will be as specified in the general provisions with respect to discovery in Division 1 of Part 21 of the Uniform Civil Procedure Rules including, in particular, rule 21.3 (with the party ordered to give discovery being “Party B”: see the definition in rule 21.1(1)):

“(1) Party B must comply with an order for discovery by serving on party A a list of documents that deals with all of the documents (other than excluded documents) referred to in the order.

(2) The list of documents:
(a) must be divided into two parts:
(i) Part 1 relating to documents in the possession of party B, and
(ii) Part 2 relating to documents that are not, but that within the last 6 months prior to the commencement of the proceedings have been, in the possession of party B, and
(b) must include a brief description (by reference to nature and date or period) of each document or group of documents and, in the case of a group, the number of documents in that group, and
(c) must specify, against the description of each document or group in Part 2 of the list of documents, the person (if any) who party B believes to be in possession of the document or group of documents, and
(d) must identify any document that is claimed to be a privileged document, and specify the circumstances under which the privilege is claimed to arise.

(3) Party B must comply with the requirements of subrule (1):
(a) within 28 days after an order for discovery is made, or
(b) within such other period (whether more or less than 28 days) as the order may specify.”

22 Obligations thus incurred by “Party B”, as the party ordered to give discovery, will accordingly extend to “documents in the possession of party B” (rule 21.3(2)(a)(i)) and “documents that are not, but that within the last 6 months prior to the commencement of the proceedings have been, in the possession of party B” (rule 21.3(2)(a)(ii)). The clear emphasis is thus upon a party’s possession of documents.

23 This raises questions about who, after the commencement of winding up, enjoys possession of (and has the right to possess) the pre-liquidation books, records and documents of the company that is in the course of being wound up. Only if the company itself has possession – so that, as “Party B”, it will be the proper object of an order for discovery and therefore a proper party to proceedings in which such an order is sought – will there be any occasion (or need) for an order for discovery against the company and therefore for an order under s 500(2) of the Corporations Act. I say this because s 500(2) is concerned only with an “action or other civil proceeding . . . against the company”.

24 Section 530A(1) of the Corporations Act provides as follows:

“As soon as practicable after the Court orders that a company be wound up or appoints a provisional liquidator of a company, or a company resolves that it be wound up, each officer of the company must:
(a) deliver to the liquidator appointed for the purposes of the winding up, or to the provisional liquidator, as the case may be, all books in the officer’s possession that relate to the company, other than books possession of which the officer is entitled, as against the company and the liquidator or provisional liquidator, to retain; and
(b) if the officer knows where other books relating to the company are—tell the liquidator or provisional liquidator where those books are.”

25 Section 530B then provides:

“ Liquidator’s rights to company’s books
(1) A person is not entitled, as against the liquidator of a company:
(a) to retain possession of books of the company; or
(b) to claim or enforce a lien on such books;
but such a lien is not otherwise prejudiced.


(2) Paragraph (1)(a) does not apply in relation to books of which a secured creditor of the company is entitled to possession otherwise than because of a lien, but the liquidator is entitled to inspect, and make copies of, such books at any reasonable time.

(3) A person must not engage in conduct that results in the hindering or obstruction of a liquidator of a company in obtaining possession of books of the company.

(3A) Subsection (3) does not apply if the person is entitled, as against the company and the liquidator, to retain possession of the books.
Note: A defendant bears an evidential burden in relation to the matter in subsection (3A), see subsection 13.3(3) of the Criminal Code .


(4) The liquidator of a company may give to a person a written notice requiring the person to deliver to the liquidator, as specified in the notice, books so specified that are in the person’s possession.

(5) A notice under subsection (4) must specify a period of at least 3 days as the period within which the notice must be complied with.

(6) A person must comply with a notice under subsection (4).
(6A) Subsection (6) does not apply to the extent that the person is entitled, as against the company and the liquidator, to retain possession of the books.
Note: A defendant bears an evidential burden in relation to the matter in subsection (6A), see subsection 13.3(3) of the Criminal Code .

(6B) An offence based on subsection (6) is an offence of strict liability.
Note: For strict liability , see section 6.1 of the Criminal Code .

(7) In this section:
liquidator includes a provisional liquidator.”

26 Both these sections must be read in light of the definition of “books” in s 9:

“ books includes:
(a) a register; and
(b) any other record of information; and
(c) financial reports or financial records, however compiled, recorded or stored; and
(d) a document;
but does not include an index or recording made under Subdivision

D of Division 5 of Part 6.5.”

27 Clearly enough, any insurance policies and letters and other documents about insurance cover that were the property of TRN at the commencement of its winding up are “books of” TRN: Re Jet Corporation of Australia Pty Ltd (1985) 9 ACLR 641.

28 In the case of a court-ordered winding up, ss 530A and 530B, together with ancillary provisions, exist in aid of the liquidator’s duty under s 474 to take all the company’s property into the liquidator’s control. Where, as here, the winding up is a voluntary winding up, the provisions are auxiliary to the equivalent asset collection function of the liquidator. The legislation works on the basis that the liquidator is entitled to possession of all documents of the company, subject only to such superior rights as are expressly recognised.

29 The rights of possession conferred by the legislation in respect of the company’s books are expressly conferred on the liquidator as a statutory official. Property in the particular paper or article will normally continue to reside with the company: Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; (2005) 220 CLR 592. But when winding up intervenes, the rights of possession that would be an ordinary incident of ownership and be exercised for the company by its officers is replaced by the statutory rights of possession created in the liquidator. After winding up begins, the officers are no longer able to exercise their functions. Such custody as they had of company books comes to an end and they are obliged by statute to put the liquidator into possession of those books.

30 It is for this reason that it is said that, where a company in liquidation is a party to litigation, the other party is entitled to obtain discovery from the liquidator: Re Barned’s Banking Co; Ex parte Contract Corporation (1867) 2 Ch App 350; Re Contract Corporation (1872) 7 Ch App 207.

31 There is, in s 486 of the Corporations Act, a suggestion that, after commencement of winding up, the company itself may have possession of “books of the company”. That section is as follows:

“The Court may make such order for inspection of the books of the company by creditors and contributories as the Court thinks just, and any books in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise.”

32 As cases concerned with this provision show, however, it is really the liquidator who has possession. I refer in particular to Re North Brazilian Sugar Factories (1887) 37 ChD 83, a case concerning s 156 of the Companies Act 1862 (Eng) which, using language very similar to that now found in s 486, provided that, after commencement of winding up, “any books and papers in the possession of the company may be inspected by creditors or contributories, in conformity with the order of the Court, but not further or otherwise”. Cotton LJ held that the section “only applies to books in the possession of the liquidator”. See also Harvey v Smith as liquidator of Normans Wines Ltd [2003] SASC 232; Williamson v Chamberlain [2006] NSWSC 178.

33 It follows, in my view, that there is no point in the plaintiff’s pressing the claim in the Common Law Division summons against TRN. Any discovery sought ought to be had from TRN’s liquidator against whom a separate claim is outstanding under that summons – assuming that that claim remains to any degree unsatisfied after the making of the order of 11 February 2008. It is not necessary to consider here whether s 486 of the Corporations Act (which is, by s 511(1)(b), made applicable to a voluntary winding up) and the highly restrictive words at the end of that section (“but not further or otherwise”), coupled with the circumstance that the plaintiff is a creditor of TRN, leave any room for resort to rule 5.2 of the Uniform Civil Procedure Rules in this particular case.

34 Because the claim maintained by the plaintiff against TRN itself by reference to rule 5.2 is pointless, leave under s 500(2) to make and pursue that claim will not be granted.

35 My provisional view is that the plaintiff should pay the liquidator’s costs of and incidental to the application for leave under s 500(2); but I shall hear the parties on costs if there is any application for some other order.

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