In the matter of Addstone Pty Ltd (in liquidation) Acn 010 764 997

[1998] FCA 1681

IN THE MATTER OF ADDSTONE PTY LTD (IN LIQUIDATION) ACN 010 764 997 AND PETER IVAN MACKS applicant AND DAVID WINSTON SIMMONS, DANIEL LEE FARRUGIA, ANTHONY JOHN SAINT, DAVID JOHN PURCELL, PETER ANTHONY JOHN HERRIMAN, KEVIN FRANCIS GILCHRIST, STEPHEN JOHN LYONS, STEPHEN GERARD CONNELL, RICHARD NEVILLE McNEIL, DAVID HUDSON PROUDMAN, DAVID GEORGE GASZNER, PAUL GEOFFREY TURNER, JOHN CLARK BRIMACOMBE, RICHARD DEWELL ROSS-SMITH, DAVID JOHN TUCKER, DENISE JEAN WATKINS, ANDIE WILLIAM BLAISE NICHOLAS and WILLIAM DAVID JENNINGS
intervenors
No. SG 3080 of 1995
FED No. 1681/98
Number of pages - 14
Practice and Procedure - Corporations Law

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

MANSFIELD J

PRACTICE AND PROCEDURE - documents released pursuant to court order - whether undertaking implied not to use documents for any purpose other than purpose for which they were released - application for release from undertaking to use in formation in document for purpose of subsequent proceedings - whether subsequent proceedings involved ulterior or collateral purpose - circumstances in which leave should be granted.

CORPORATIONS LAW - Winding up - application for leave to commence proceedings against company in liquidation - circumstances giving rise to alleged cause of action arose after liquidation - whether applicant had opportunity to raise issues in earlier proceedings by liquidator - whether leave should be granted to proceed - circumstances in which leave should be granted under s 471B of Corporations Law.

Corporations Law ss 471A, 471B, 472(4), 477(1), 477(2)(c), 479(3), 596B, 596D

Legal Practitioners Act 1981 (SA) s52

Trade Practices Act 1974 (Cth) s52

Federal Court Rules O 15 r 18

Harman v Secretary of State for the Home Department [1983] 1 AC 280, applied

Ainsworth v Hanrahan (1991) 25 NSWLR 155, applied

Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217, followed

Ampolex v Perpetual Trustee Company (Canberra) Ltd (1995) 18 ACSR 218, applied

Crest Homes PLC v Marks [1987] 1 AC 829, distinguished

Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576, considered

Re Sydney Formworks Pty Ltd (In Liquidation) [1965] 1 NSWLR 646, considered

Re Gordon Grant and Grant Pty Ltd (in liq) (1982) 6 ACLR 727, considered

Re Coastal Constructions Pty Ltd (In Liquidation) (1994) 13 ACSR 329, considered

Vagrand Pty Ltd (In Liquidation) v Fielding (1993) 41 FCR 550, applied

Zempilas v J N Taylor Holdings Ltd (In Provisional Liquidation) (No. 3) (1991) 55 SASR 108, applied

Maher v Taylor (1984) 1 NSWLR 231, applied

Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996-97) 22 ACSR 123, considered

Re Soaps & Chemicals (Pty) Ltd [1935] NPD 674, considered

ADELAIDE, 8-9 December 1998 (hearing), 23 December 1998 (decision)

#DATE 23:12:1998

Appearances

Counsel for the Applicant:

Mr RJ Whitington QC

with him

Mr MG Steele

Solicitor for the Applicant:

Ward & Partners

Counsel for the Intervenors:

Mr ML Abbott QC

with him

Mr NJ Iles

Solicitor for the Intervenors:

Piper Alderman

Order:

1. David Winston Simmons, Daniel Lee Farrugia, Anthony John Saint, David John Purcell, Peter Anthony John Herriman, Kevin Francis Gilchrist, Stephen John Lyons, Stephen Gerard Connell, Richard Neville McNeil, David Hudson Proudman, David George Gaszner, Paul Geoffrey Turner, John Clarke Brimacombe, Richard Dewell Ross-Smith, David John Tucker, Denise Jean Watkins, Andie William Blaise Nicholas, William David Jennings and their solicitors and counsel be relieved from the implied undertaking not to disclose or make use of the documents, or the contents of the documents, produced to them by the liquidator on 21 August 1998 in accordance with the direction of the Court, to the extent that that material referred to or contained within those documents refers to the name "Charles Fice".

2. Application for leave to proceed against the Emanuel Group of Companies, being the companies identified in the attachment "A" to this order, in a proposed action in the Supreme Court of South Australia referred to in the affidavit of Nicholas James Iles sworn herein on 2 December 1998 is refused.

MANSFIELD J

This is a motion to be relieved of an undertaking regarding the use of documents produced under Court direction, and for leave under s 471B of the Corporations Law ("the Law") to commence and maintain proceedings against companies in liquidation.

BACKGROUND

Peter Ivan Macks ("the liquidator") is the official liquidator of Emanuel Management Pty Ltd (In Liquidation) and sixty-three other companies together known as the Emanuel Group ("the Emanuel Group"). The liquidator has instituted various proceedings in his own name and in the names of some one or more of the Emanuel Group in the Supreme Court of South Australia, seeking to recover in those various proceedings damages on behalf of the members of the Emanuel Group for the benefit of the creditors of the Emanuel Group.

On 20 March 1998, the Emanuel Group and the liquidator brought proceedings against sixteen individual legal practitioners together practising at material times under the name "Thomsons Barristers and Solicitors", and against Thomson Simmons Holdings Pty Ltd (together "Thomsons") in Supreme Court of South Australia Action 409 of 1998 ("the Supreme Court action").

By notice of motion dated 10 August 1998, the applicant applied for an order under s 479(3) of the Law for an order that, in his capacity as liquidator of the Emanuel Group, he had power under s 477(2)(c) of the Law to enter into a proposed arrangement with a view to procuring funding for the conduct of the Supreme Court action and another separate action against other defendants on behalf of the Emanuel Group. Thomsons appeared on that motion, and sought to be heard in two capacities, namely as defendants to the Supreme Court action, and as creditors of one or more of the members of the Emanuel Group. I ruled that Thomsons had standing to appear on that motion as creditors, but not as defendants, and on 21 August 1998 I directed that the liquidator should make available to Thomsons the affidavit material relied upon on his motion, and the exhibits to the affidavit material, but masking or removing therefrom information which the liquidator regarded as confidential. Following that material being made available to Thomsons, they indicated that they did not wish to make any further submissions in opposition to the application. I subsequently gave the directions sought by the liquidator. The nature of the funding arrangement is described in some detail in my reasons for decision given on 8 December 1998. I shall call that funding arrangement "the Funding Arrangement" hereafter.

The documents relating to the liquidator's application made available to Thomsons included partially masked copies of the documents comprising the Funding Arrangement. The name of the insurer was not identified in that material. The documents comprising the Funding Arrangement, as provided to Thomsons, had at the bottom of each page the name "Charles Fice", a firm of solicitors. Solicitors for Thomsons suspected that Charles Fice acted for GIO Insurance Ltd ("GIO Insurance") in the negotiation and establishment of funding arrangements provided to liquidators for the conduct of litigation, and in the overseeing of any such litigation which was funded by GIO Insurance. That piece of information, namely the name Charles Fice on those documents, led solicitors for Thomsons to cause further inquiries to be made to confirm, as is the case, that the Funding Arrangement is with GIO Insurance.

I accept that that was the only information which Thomsons by their solicitors have used from the documents produced under the direction of 21 August 1998, including those relating to the Funding Arrangement, other than for the purpose of considering what further role they wished to take in relation to the liquidator's application for directions under s 479(3) of the Law. Equally, it must be said, that was the critical piece of information from which the line of inquiry was initiated leading to the identification of GIO Insurance as the insurer under the Funding Arrangement. That is in fact deposed to on behalf of Thomsons.

The Law Society of South Australia has established a Professional Indemnity Insurance Scheme pursuant to s 52 of the Legal Practitioners Act 1981 (SA). Under that scheme, a Master Policy is issued, underwritten by insurers ("the Master Policy"). Each of the members of Thomsons was an assured person under the Master Policy in force from time to time. GIO General Ltd is asserted to be one of the underwriters of the Master Policy at times relevant to the Supreme Court action. In addition, each of the members of Thomsons was an assured person under a series of professional indemnity insurance policies providing insurance against liability for professional negligence to levels in excess of that provided under the Master Policy ("the top up insurance policies") in respect of the period 1 March 1995 to 28 February 1997. GIO Australia Ltd, GIO General Ltd and GIO Insurance are variously one of the underwriters of the top up insurance policies. Thomsons claims to be entitled to indemnity under the Master Policy and under the top up insurance policies in respect of the liability alleged against Thomsons in the Supreme Court action.

Thomsons now propose to institute proceedings in the Supreme Court of South Australia against GIO Australia Holdings Ltd, GIO Australia Ltd, GIO General Ltd and GIO Insurance ("the GIO Group") and against the liquidator and against the Emanuel Group. In broad terms, it is sought to be alleged that, by reason of the Master Policy and the top up insurance policies of which members of the GIO Group were partial underwriters, the GIO Group are in breach of their duty of utmost good faith to Thomsons, are in breach of the terms of the relevant policies of insurance, have acted negligently, are in breach of their fiduciary duty to Thomsons, and have contravened provisions of s 52 of the Trade Practices Act 1974 (Cth). Separately, allegations are made against the liquidator, asserting that he has acted negligently and in breach of fiduciary duty, and has unlawfully interfered with the contractual rights of Thomsons under the relevant policies of insurance with members of the GIO Group. The submission was put that the proposed joinder of the Emanuel Group was essentially to ensure that it is bound by the result of the proposed Supreme Court action. I shall call that proposed proceedings "the Insurance Claim".

That background provides the context for the present motion of Thomsons. Its seeks the following orders that:

1. For the purposes of the preparation, issue and prosecution of the Insurance Claim in the Supreme Court of South Australia, Thomsons and their solicitors and counsel be relieved from any implied undertaking not to disclose documents including the Funding Arrangement, or the contents of those documents, produced to them by the liquidator by the direction given on 21 August 1998, and referred to above, and

2. Thomsons have leave pursuant to s 471B of the Law to commence and proceed with the Insurance Action against the Emanuel Group.

The liquidator opposes the orders sought.

RELEASE FROM UNDERTAKING

Thomsons first contend that the documents produced by the liquidator pursuant to the direction made on 21 August 1998 did not, in the circumstances, attract any implied undertaking, on their part, or on the part of their solicitors, to keep the material provided to them confidential and not to make use of it for any other purpose than for the purpose of opposing, if so advised, the liquidator's application for directions under s 479(3). It is contended that the nature of the information produced was such as to mean that no implied undertaking applied with respect to it, in particular because the liquidator had the opportunity of restricting the information provided to that which he considered not to be confidential, and because the material might be referred to at length in the reasons for decision on the liquidator's application. Thomsons also make the curious submission that, because the liquidator raised the question of whether a formal direction should be given as to the use to which the documents so produced might be put, and I indicated at that time that I would record the circumstances in which the documents were made available leaving the normal legal obligations and processes to take their course, they are thereby entitled to make such use of those documents as they saw fit. I reject that contention. No ruling was made at the time that the documents to be produced were not subject to any implied undertaking of the type identified in Harman v Secretary of State for the Home Department [1983] 1 AC 280. The assertion of counsel for Thomsons cannot by itself remove any objection which the law otherwise imposes.

In my judgment, the circumstances in which Thomsons and their solicitors came to see the documents comprising the Funding Arrangement, and so to know the name Charles Fice as associated with them, did carry an implied undertaking not to use those documents for any purpose otherwise than in relation to the liquidator's application for directions under s 479(3). It was only in the capacity of creditors that Thomsons were permitted to participate in the hearing of the liquidator's application, and given access to the material. The purpose for doing so was clear. Thomsons had through their counsel indicated that, as creditors, that was the purpose for which the documents were sought. Having received that information, Thomsons did not then participate further on the hearing of the application after they had considered it. Consequently that material was not read on the hearing of the application: cp O 15 r 18 of the Federal Court Rules. It did not become part of the evidence in open Court.

Harman's case states the underlying reason for an implied undertaking with respect to discovered documents. Lord Diplock at 300 said:

"The use of discovery involves an inroad, in the interests of achieving justice, upon the rights of the individual to keep his own documents to himself; it is an inroad that calls for safeguards against abuse, and these the English legal system provides, in its own distinctive fashion, through its rules about abuse of process and contempt of Court."

The duty which is therefore placed upon the recipient of documents procured in the course of discovery arises because, absent the proceeding, there is no entitlement to those documents. They are private. They need not necessarily contain confidential or commercially sensitive material to have that quality. It exists because of the nature of the documents, and the circumstances in which they come to be released to the other party, and not necessarily because of their contents. The fact that the liquidator was entitled to, and did, exclude material which he regarded as confidential, did not render the documents in the public arena. They still retain their character as the liquidator's private documents, notwithstanding that he

had been obliged to disclose them to Thomsons in their capacity as creditors of the Emanuel Group.

Those considerations lead me to the conclusion that the receipt by Thomsons of those documents carried with it an implied undertaking not to use those documents for any purpose otherwise than in relation to the liquidator's application for directions under s 479(3) of the Law. The principle in Harman with respect to discovered documents has been applied in relation to interrogatories: Ainsworth v Hanrahan (1991) 25 NSWLR 155, and in respect of witness statements provided by an exchange but never read in open court: Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217. In that case, Wilcox J said at 223:

"In this court there is a rule (O 46 r 6) limiting the documents on court files which may be inspected without leave of the court or a judge. They include affidavits, interrogatories... All are documents brought into existence for the purpose of the instant litigation which may contain confidential or personal information and which may, or may not, ultimately be read in open court. There is every reason for subjecting their use to the same constraints."

The documents provided to Thomsons, as copies, were brought into existence for the purpose of the application under s 479(3) and to enable Thomsons to exercise meaningfully their right to participate in the hearing.

In Ampolex v Perpetual Trustee Company (Canberra) Ltd (1995) 18 ACSR 218 at 221, it was said:

"When a party or the party's lawyer is permitted to inspect a document of another person produced under compulsory processes of the court in, or in relation to, pending proceedings, as in the case of discovery or a subpoena, the party is taken to have undertaken to the court that the document or the information therein will not be used for collateral or ulterior purposes (meaning purposes different from the conduct of the proceedings in or in relation to which inspection was had)."

In my judgment, such an undertaking was clearly to be implied in the circumstances of the disclosure to Thomsons of the documents constituting the Funding Arrangement.

The respondents next contend that the liquidator has impliedly waived his entitlement to insist upon that undertaking being respected because, on this motion, he has acknowledged correspondence between his solicitors and solicitors acting for GIO Insurance of 5 and 12 November 1998 in which GIO Insurance was identified as the insurer under the Funding Arrangement. It is pointed out that the concerns then communicated to him on behalf of Thomsons, as to the allegedly conflicting roles of GIO Group as an insurer under the Funding Arrangement and as insurers of Thomsons under the Master Policy and under the top up insurance policies, were discussed and the possibility of further steps being taken to allay those concerns were addressed. It is contended that, because the only use of the material in the documents produced was to identify the name Charles Fice and to pursue enquiries as a result of it, and because the only result of that process has been the identification of GIO Insurance as the insurer under the Funding Arrangement, the acknowledgment of the liquidator of that fact now constitutes an implied waiver of confidentiality.

There is one other fact which is said to give rise to the waiver. On 7 October 1998 in Supreme Court Action 1021 of 1995("the examination action") an order was made that a member of Thomsons be examined under s 596B of the Law, and produce documents under s 596D of the Law. On behalf of that member of Thomsons, application was made, inter alia, for a stay of those orders while discovery processes were explored on behalf of that member of Thomsons. It was asserted in an affidavit filed by a solicitor on that application that the relevant insurer under the Funding Arrangement was a member of the GIO Group, and that members of GIO Group were also underwriters of Thomsons under the Master Policy and the top up insurance policies. It was asserted that Thomsons had instructed those solicitors to advise on whether the funding of the liquidator by a member of the GIO Group constituted a breach of the duties or obligations (now spelled out in the proposed draft statement of claim) of the GIO Group. The assertion that the GIO Group was funding the liquidator under the Funding Arrangement was explained as having been ascertained by a line of enquiry from the name Charles Fice on the documents produced by direction on 21 August 1998. The material, and submissions, acknowledged that the source of that name was the documents produced under that direction. Consequently, it is put, that information had been made use of in the examination action on behalf of Thomsons to resist an order that one of the members of Thomsons, should be examined under s 596B and should produce documents under s 596D of the Law. It is contended that the fact that the liquidator did not then object to the use of that information, constituted a waiver by silence of the implied undertaking.

I do not accept that contention. The reasons in support of it demonstrate that the liquidator, confronted by information derived from investigators based upon information in the Funding Arrangement documents, responded to it. But by then the information had been used in the manner described. I do not think that the manner of the liquidator's responses indicate that he waived any right which he had to keep the documents produced private, or that he released Thomsons and their solicitors from the implied undertaking as to the use of the documents in issue. It is, however, significant in my view that the identity of GIO Insurance as the insurer under the Funding Arrangement was presented to the Supreme Court on that application, as evidencing the fact that that information is now, however it came to be procured, publicly available.

It is next contended that there is no breach of the implied undertaking because the information about Charles Fice extracted form the Funding Arrangement documents was not used for a collateral purpose. The argument runs that, because the documents came into Thomsons' possession in the context of a potential challenge to the legitimacy of the Funding Arrangements, the use of the documents for that purpose in the Insurance Claim cannot represent a breach of that undertaking. Reliance is placed on Crest Homes PLC v Marks [1987] 1 AC 829 at 860. Again, I do not accept that submission. The documents were provided to Thomsons, in their capacity as creditors of the Emanuel Group, having regard to their asserted interest in addressing the proposed Funding Arrangement, so that in their capacity as creditors they could participate in the hearing as to whether the liquidator should be given the directions then sought. Their claim to be heard on that application as defendants was refused. It is quite apparent that the purpose for which the information is now to be used is not by Thomsons in their capacity as creditors, but by Thomsons in their capacity as defendants to the Supreme Court action for the purpose of frustrating the claim against them. It is positively asserted in the proposed statement of claim in the Insurance Claim (par 128.2) that, but for the Funding Arrangement, the liquidator and the Emanuel Group would be unable to prosecute the Supreme Court action against Thomsons, and Thomsons would have no action to defend. That picture also emerges from the correspondence passing between solicitors for the liquidator and for Thomsons in November 1998. Thomsons was asked to express its views as to the nature and extent of any conflict, and to discuss how best that might be resolved. Although earlier communications with the insurers had discussed that very issue, Thomsons' response to the liquidator's solicitors was unequivocal: no safeguard

to preserve confidential material could prevent what they asserted to have been a fundamental breach of the obligations due to Thomsons by GIO Insurance. They demanded the immediate withdrawal of GIO Insurance and the liquidator from the Funding Arrangement, the unconditional indemnification of Thomsons in respect of all matters arising out of the Emanuel matter and the payment of their costs to date as the price of absolution of GIO Insurance and the liquidator from the breaches which they alleged had occurred. Crest does not assist the applicants. It involved an application for leave to use documents obtained on the execution of an Anton Pillar order to consider the prosecution of contempt proceedings against the same parties for failure properly to comply with an earlier Anton Pillar order. Leave was given. The principal speech given by Lord Oliver at 860 recognised the general principle that

"...the court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery."

The Lordship explained that the fact that the two Anton Pillar orders were in separate proceedings was entirely "adventitious" and they each involved the same cause of action. He regarded an application for enforcement of the Court's order in contempt proceedings in those proceedings as an integral part of the action in which they were obtained. Those circumstances are far removed from the present circumstances. In my judgment, the proposed use of the information referred to in the Insurance Claim would clearly be a purpose extraneous to the purpose for which Thomsons received that information.

Finally, it is put that the Court can, and should, release Thomsons and their solicitors and counsel from any implied undertaking because there are "special circumstances". It is contended that the release should be permitted in the interest of justice, that the release will not occasion injustice to the liquidator or the Emanuel Group (cp Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576 at 579 per Burchett J), and that, because the documents disclosed by use of the information to date indicate an arguable unlawful interference with contractual rights and a breach by GIO Insurance of its obligations to act with utmost good faith towards Thomsons, they should be entitled to pursue that claim without the impediment imposed by their implied undertaking. They also assert that the liquidator ought to have disclosed to Thomsons, and to the Court the information held as to the relationship of GIO Insurance with Thomsons and that that consideration also militates in favour of the release of that undertaking.

The practical position is that the information has been used. It has been referred to in the examination action. There has been extensive correspondence between Thomsons, solicitors for the GIO Group, and the liquidator as well as with the insurance brokers responsible for the Master Policy and for the top up policies of insurance. As counsel for the liquidator now acknowledges, it is impossible to "put the genie back in the bottle". It would be virtually impossible to enforce the implied undertaking from this point forward, simply because one cannot eliminate the information now available to Thomsons as information they did not have.

The importance of the implied undertaking was stressed in Crest at 580, and is similarly reflected in the observations of Burchett J in Holpitt at 579 and of Wilcox J in Springfield Nominees Pty Ltd v Bridgelands Securities Pty Ltd (1992) 38 FCR 217 at 221-224. Burchett J in Holpitt said that the Court's duty on an application to be relieved of the implied undertaking is

"...to consider whether the applicant has shown some circumstance which takes the matter out of the ordinary course, according to which production of documents pursuant to an obligation to make discovery involves the implied undertaking to the court; and if so, whether an exercise of the court's discretion in favour of the application would be in the interests of justice."

As Wilcox J said in Springfield at 225, there can be no exhaustive list of the factors relevant to the exercise of that discretion. In my judgment, however it may have occurred, the extent to which the information is now generally available is an overwhelming consideration in the present circumstances. It would be impossible now to enforce meaningfully and in a useful way that undertaking. It would also be impossible to establish that information that GIO Insurance is the insurer under the Funding Arrangement, used in any other proceedings or otherwise, was necessarily now attributable to the documents provided to Thomsons on 21 August 1998. The liquidator's attitude on this aspect of the application recognises those matters. That factor is so significant that it is unnecessary to address separately the other matters referred to by counsel.

I propose to release Thomsons and their solicitors and counsel from the implied undertaking not to disclose or make use of the documents, or the contents of the documents produced to them by the liquidator on 21 August 1998 in accordance with the direction of the Court, to the extent that that material contained in it as part of the Funding Arrangement, the name "Charles Fice". I was requested to make that order retrospective. There is in the material presently before me, no explanation for the use of that information in the application in the examination action. I do not intend to express any view specifically on that use, beyond the views necessarily reached for the purpose of these reasons. In the absence of any such explanation, however, I decline to make my order retrospective.

SHOULD LEAVE TO PROCEED BE GIVEN?

Section 471B of the Law provides:

"While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:

(a) a proceeding in a court against the company or in relation to property of the company; or

(b)enforcement process in relation to such property;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes."

Thomsons' contention was a straightforward one. The rationale underlying s 471B was said to be that the assets of a company in liquidation should be administered in accordance with the Law, and that no person should obtain an advantage in relation to other creditors by the commencement or maintenance of proceedings; the normal process of proof of the debt in the liquidation should therefore generally be followed: see eg Re Sydney Formworks Pty Ltd (In Liquidation) [1965] NSWLR 646 at 649-650. They contend that the leave sought will not offend that rationale because the Insurance Claim principally seeks declaratory orders only against the Emanuel Group, and to the extent that relief is sought in the nature of a claim for restitution, the other creditors of the Emanuel Group will not be disadvantaged because the claim if successful will result in "nothing more than an order that the companies disgorge any benefit they receive" from the Funding Arrangement. They submit that the Emanuel Group of Companies are necessary and proper parties to the proceedings, as the Funding Arrangement by virtue of which the Supreme Court proceeding is being conducted is under attack, and that in other respects there is no reason why the Emanuel Group should not be joined as defendants in the Insurance Claim. They proffer the undertaking that they will not enforce any order made against the Emanuel Group, including any costs order, without further leave of the Court.

The liquidator and the Emanuel Group oppose the granting of the leave sought. They contend that Thomsons are seeking to go behind findings made on the application under s 479(3), in which Thomsons participated, or alternatively that any leave given should be on the condition that the findings on that application not be challenged in the Insurance Claim. In particular, it is apparent that Thomsons now seek to establish in the Insurance Claim that the Funding Arrangement is invalid and void as offending the rule against maintenance and champerty, and that the liquidator in entering into the Funding Arrangement was not bona fide exercising his power to sell part of the proceeds of the cause of action in the Supreme Court action under s 477(2)(c) of the Law.

I do not accept that the rationale underlying s 471B is as limited as Thomsons contend, although the rationale they refer to has certainly been accepted as constituting one rationale for that provision and its ancestors: Re Gordon Grant and Grant Pty Ltd (In Liquidation) (1982) 6 ACLR 727; Re Coastal Constructions Pty Ltd (In Liquidation) (1994) 13 ACSR 329. It is also at least one rationale for provisions such as s 471B that a company in liquidation not be harassed and its assets wasted by unnecessary litigation: see cp per Wilcox, Burchett and Beazley JJ in Vagrand Pty Ltd (In Liquidation) v Fielding (1993) 41 FCR 550; Zempilas v JN Taylor Holdings Ltd (In Provisional Liquidation) (No. 3) (1991) 55 SASR 108 at 110; Maher v Taylor (1984) 1 NSWLR 231 at 234. The prospect of the assets of a company in liquidation being largely dissipated in the defence of a proposed claim was a significant factor in Lehane J refusing leave to proceed under s 444E(3) of the Law (the equivalent provision to s 471B applicable where a company is under administration) in Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996-97) 22 ACSR 123.

In respect of causes of action which are alleged to arise after the commencement of the liquidation, no debts which so arise are provable in the winding up: s 553. The reason for

requiring that leave be granted before such a cause of action is pursued must lie in the Court's interest in ensuring the orderly administration of the winding up of the company's affairs, as recognised in the authorities referred to above. It will be a rare instance where it is sought to bring proceedings against a company in liquidation as distinct from proceedings against the liquidator, but such circumstances do occasionally arise. See eg. Re Soaps &

Chemicals (Pty ) Ltd [1935] NPD 674. It is only the liquidator who may carry on the affairs of the company: ss 471A, 472(4), 477(1) of the Law. This is such an instance.

It is clear from the proposed statement of claim in the Insurance Claim that Thomsons do propose to challenge the lawfulness of the Funding Arrangement, and to challenge the bona fide of the liquidator in entering into the Funding Arrangement. Those matters are explicitly alleged. It is also clear from the material now before the Court that at least from mid July 1998, Thomsons through its solicitors had concerns that the liquidator might enter into a funding arrangement to conduct the Supreme Court action with an insurer which was also one of the underwriters under the Master Policy or under one or more of the top up insurance policies. Thomsons was aware that the GIO Group was one of only a few insurers participating in the market for providing funding insurance to liquidators. From 17 July 1998, Thomsons undertook correspondence expressing their concern that one of the underwriters under the Master Policy or under one of the top up insurance policies might enter into a funding arrangement with the liquidator. The identity of GIO Insurance as the insurer under the Funding Arrangement did not emerge until 2 September 1998 or later.

On 25 August 1998, by which time Thomsons had had access to the Funding Arrangement upon the basis outlined above, Thomsons informed the court that they did not wish to make any submission about the Funding Arrangement. Thomsons did not then inform the Court of their concern referred to in the preceding paragraph. That is notwithstanding that earlier, when seeking access to the documents comprising the Funding Arrangement, their counsel specifically adverted to Thomsons' wishing to consider whether the Funding Arrangement was void for illegality or was in breach of public policy, and to consider whether proper steps had been taken by the liquidator to "appropriately secure insurance", including whether the insurer was informed of "the big picture" (in the context of their concerns at potential consolidation of the Supreme Court actions). They had, on 18 and 19 August 1998, undertaken correspondence through their insurance broker to at least to three underwriters, including to GIO Insurance, expressing those concerns. That course of correspondence commenced in mid July 1998.

At that time, Thomsons' request of the underwriters was less absolute than that expressed in the Insurance Claim. They contemplated that any conflict of interest might be accommodated by the relevant underwriter removing itself from the decision making process in relation to the defence of the Supreme Court action. The letter to GIO Insurance, as one of the underwriters under the top up insurance policies, included the following:

"Our client has notified claims under its top-up insurance. The claims appear to relate to notifications made prior to our appointment as their broker, and in particular to the 1995 and 1996 policy years. Out of an abundance of caution, they have also notified Willis Corroon recently, and these notifications were forwarded to GIO by letter dated 6 July 1998 in relation to "Thomsons", and by letter dated 23 July 1998 in relation to "Playfords".

To the extent that it is necessary, we have been requested by Thomson Playford to seek individual assurances from each of the underwriters of their top-up insurance that their company:

(i) is not involved in the funding of the litigation, and

(ii) has no conflict of interest in connection with these claims.

Could you please provide your assurance in relation to the above in writing by return.

In the alternative, if you are unable to provide this assurance, could you please confirm that your company has appropriate mechanisms in place to avoid disclosure of confidential information derived from the conduct of these claims for the benefit of any other party for whom you act as insurer, in which case, could you please advise the nature of those mechanisms.

If GIO Insurance Ltd is unable to give this assurance, then it would seem to us that GIO Insurance Ltd is in a position of conflict, and that it would be totally inappropriate for GIO Insurance Ltd to maintain any involvement in the defence and general conduct of any litigation on behalf of Thomsons.

In those circumstances, and in the event of a claim eventuating under this Policy, our client will require that GIO Insurance Ltd relinquish its claims management role as Lead Underwriter in relation to those claims and we will seek the agreement of all co-insurers that the Top-Up claims handling function be provided by R.J. Wallace & others who are:

(i) Lead Underwriter of the primary insurance, and

(ii) A 30% participant on the $4,250,000 in excess of $750,000 excess layer,

And are conducting the claims on a primary basis.

Our client will then expect GIO Insurance Ltd to abide by the claims management decisions of R.J. Wallace & others."

Despite those concerns, clearly by then coalescing into a very real suspicion that the GIO Group may have been the insurer under the Funding Arrangement, that was not raised before the Court. Having seen the Funding Arrangement, they chose to make no further submissions and to raise no questions concerning it.

Thomsons contend that it was the liquidator's responsibility to do so. The liquidator had conducted negotiations with several entities with a view to procuring funding to conduct the Supreme Court action. One such entity was FAI General Insurance Company Ltd. It declined to pursue negotiations, in part because of the possible conflict that could arise from its underwriting obligations. The liquidator was aware of that during his negotiations. He was mindful in his negotiations with GIO Insurance that it might be an insurer of one of the legal firms against which he proposed to bring proceedings, and in respect of which he was endeavouring to procure funding.

One of his staff raised that matter with GIO Insurance in July 1997, and he learnt that GIO Insurance was one of the underwriters under the Master Policy. He was informed that GIO Insurance took the view that it did not have a conflict of interest and that there was not a problem. He accepted that response. He understood, as is the case, that there were a number of underwriters of the Master Policy. GIO has maintained that there is no real problem because the "conflict" alleged is only a potential commercial conflict of interest, and because its role and decision making processes in relation to the Master Policy and the top up insurance policies have been isolated from its role and decision making processes in relation to the Funding Arrangement. The liquidator has invited Thomsons to indicate whether there are any further steps which are required by them to ensure that separation, but despite the earlier correspondence from their insurance brokers suggesting just such processes, Thomsons have now taken the view that nothing short of total withdrawal from the Funding Arrangement will satisfy them.

In those circumstances, I do not accept the submission of Thomsons that it was for the liquidator, and for the liquidator alone, to have brought the issue to the attention of the Court on or before 25 August 1998. I accept the liquidator's evidence that any concerns on his part were allayed, reflecting an understanding that as between GIO Insurance and Thomsons any prospect of a conflict of interest had been or would be accommodated by the sort of isolation of functions and decision making processes which Thomsons' insurance brokers (unbeknown to him at the time) had themselves suggested. I do not criticise him in those circumstances for not bringing the matter to the attention of the Court.

In light of Thomsons' concerns, and the evidence that they had by 25 August 1998 focussed their attention on three insurers including GIO Insurance, and their belief that there was a likelihood that it was one of those three insurers which had entered the Funding Arrangement, in my view it was incumbent upon Thomsons to have brought that concern to the attention of the Court at that time. Counsel for Thomsons acknowledged in submissions that his clients were aware of the small number of participants in the market of providing litigation funding to liquidators. It is now to be asserted in the Insurance Claim that the role of GIO Insurance means that the Funding Arrangement is outside the proper scope of s 477(2)(c) of the Law and is champertous. It is also now to be asserted in that action that the liquidator's decision to enter into the Funding Arrangement was not a bona fide exercise of his power to sell part of the proceeds of the proposed cause of action against Thomsons. I do not accept that Thomsons could not, or should not, have brought their concerns to the attention of the Court. The issues of whether the Funding Arrangement was champertous, and whether the liquidator was acting bona fide, were expressly identified by Thomsons through their counsel as matters they wished to consider in relation to the Funding Arrangement.

In the course of the hearing, counsel for Thomsons indicated that his clients took the view that they did not have to articulate their concerns about the Funding Arrangement without seeing the documents comprising the Funding Arrangement. It is now clear what at least one of those concerns was. Having seen those documents, they chose not to express that concern at that time. In fact, Thomsons' counsel then expressed the anticipation that the directions sought would be given.

In the light of that attitude, in giving the directions sought by the liquidator, I specifically found that in entering into the Funding Arrangement the liquidator was bona fide exercising his power of sale of part of the fruits of the cause of action which he alleges against Thomsons. I also found that the Funding Arrangement fell within the statutory exception to the law against maintenance and champerty. In my view, it is a factor weighing against the grant of the leave now sought that Thomsons want findings made in the Insurance Claim inconsistent with those findings. After having access to the Funding Arrangement in the manner described, they raised no such issues. In effect, having chosen to keep their concerns to themselves and anticipating that those findings would be made, they now want leave to bring proceedings to contradict those findings.

I also do not accept the submission that the leave sought will not adversely affect the Emanuel Group, and its creditors generally, despite the proffered undertaking. Such an undertaking is sometimes accepted as a condition of leave being granted, when the proceedings proposed are a convenient way of having determined the entitlement of an entity against the company in liquidation, rather than by the lodging of a proof of debt and the subsequent dispute resolution processes provided for. The undertaking then ensures that, if the entitlement is established, it is proved in the liquidation so as to be treated equally with the entitlements of other creditors. But a primary purpose of the Insurance Claim is clearly to have the Funding Arrangement declared void. That is likely to have the consequence that the liquidator will be unable to prosecute the Supreme Court action. The claim also seeks against the Emanuel Group "an account of profits derived by" the Emanuel Group from the liquidator having entered into the Funding Arrangement. That must involve some part, or all, of the proceeds of the Supreme Court action. That is clearly therefore an attempt to deprive the Emanuel Group of the benefits of some part, or all, of an asset which the liquidator is attempting to realise for the benefit of the creditors.

Counsel for Thomsons submitted that the Emanuel Group would not incur any costs disadvantage by being a party to the Insurance Claim, because it would be represented by the same solicitors as those retained by the liquidator. I think, at best, that is a fairly neutral consideration. But, it was also asserted that there is the potential for the Emanuel Group interests to diverge from the interests of the liquidator. There would then be a need for separate representation. The material before the Court indicates that the Emanuel Group presently does not have cash resources available to fund such representation: cp Meehan (above). This factor, to my mind, weighs in the scales against the grant of the leave sought.

There are certain matters which do weigh in the scales in favour of the grant of leave. As the Funding Arrangement is to be attacked in the Insurance Claim, it is said to be desirable that the Emanuel Group be parties to that proceeding so that they can be bound by the outcome. They are parties to the Funding Arrangement. The Insurance Claim may or will proceed against the GIO Group and the liquidator in any event. The conduct complained about is significant. Those matters provide strong reasons why the Emanuel Group should be a party to the Insurance Claim. It may be difficult for an order to be made declaring the Funding Arrangement void if the Emanuel Group is not a party. Thomsons may be left with a claim against the GIO Group, and the liquidator, for damages. In addition, Thomsons have acknowledged that if, in the Insurance Claim, the liquidator successfully pleads some form of estoppel by reason of the course of his application for directions under s 479(3) of the Law, and by reason of Thomsons' role in that application, then they will accept that such an estoppel will ensue for the benefit of the Emanuel Group. In effect, they will accept such an estoppel will exist as between themselves and the Emanuel Group, as well as between themselves and the liquidator, even though the Emanuel Group was not formally an applicant on the liquidator's application. I have carefully weighed those considerations in reaching my conclusion on this aspect of the motion.

There is one other matter to which, in a small way, I have had regard. I noted above that correspondence on behalf of Thomsons on 18 and 19 August 1998 raised the prospect of GIO Insurance isolating its roles as an underwriter of Thomsons and under the Funding Arrangement. Later, that prospect was said by Thomsons to be unacceptable. I raised with counsel for Thomsons the provision of affidavit material explaining that changed attitude, and explaining any practical concerns about the isolation process as earlier suggested. Assuming that the alleged conflict of interest on the part of the GIO Group exists, I sought to understand whether Thomsons had any real practical concerns about the isolation process which the GIO Group has put in place, or in which a real and practical way might affect their entitlement to indemnity or the extent of their insurance protection under the Master Policy or under the top up insurance policies. I raised the question, as I said, at the time, to allay any concern that Thomsons' real reason for the Insurance Claim is as a means of frustrating the Supreme Court action against them, rather than reflecting a genuine concern on their part about the propriety of the GIO Group entering into the Funding Arrangement and consequent upon it doing so. I have not concluded that Thomsons' reason for the Insurance Claim is only to stop the Supreme Court action, or that their concern is not genuine. But, there was no material filed in response to my invitation. I conclude that, despite their genuine concern, there are no significant practical considerations relating to their right to indemnity or the way that any claim to indemnify might be approached by GIO Insurance, as distinct from the existence of the alleged conflict of interest itself, which should be taken into account.

I have carefully considered the various matters put on behalf of Thomsons. I have discussed in a some detail above a number of those matters, together with those considerations which I think weigh in the scales against granting the leave sought. I have come to the firm conclusion that, notwithstanding the factors which lend themselves towards the grant of leave, the application for leave to proceed against the Emanuel Group should be refused.

The application for leave to proceed against the Emanuel Group in the Insurance Claim is refused.