In the matter of Interchase Corp Ltd In the matter of an application by Barber, Richard Anthony & Anor (as Liquidators of Interchase Corp Ltd (in liq))
[1996] FCA 469
•6 JUNE 1996
CATCHWORDS
CORPORATIONS - liquidation - conduct and incidents of - examination of persons suspected of possessing information - “examinable affairs” for purposes of Corporations Law - liquidator reasonably requiring information to assess prudence of continuing litigation for recovery - information relating to whether insurers will deny indemnity required - potential prejudice
Corporations Law s 596B, 597(9)
Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 Refd
Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) 12 ACSR 513 Refd
Re GPI Leisure Corporation Ltd (1994) 12 ACLC 815 Refd
Re BPTC Ltd (in liq) 14 ACSR 460 Refd
In the matter of Interchase Corporation Limited and In the matter of an application by Richard Anthony Barber and Gregory Paul Kelly, Liquidators of Interchase Corporation Limited (In Liquidation)
No NG 3018 of 1991
Kiefel J Brisbane 6 June 1996
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION No NG 3018 of 1991
IN THE MATTER of INTERCHASE CORPORATION LIMITED (IN LIQUIDATION)
AND
IN THE MATTER of an application by RICHARD ANTHONY BARBER and GREGORY PAUL KELLY, Liquidators of INTERCHASE CORPORATION LIMITED (In Liquidation)
JUDGE MAKING ORDER: Kiefel J
DATE OF ORDER: 6 June 1996
WHERE MADE: Brisbane
MINUTES OF ORDERS
THE COURT ORDERS THAT:
Ron J Shorter, William John Ballhausen and Dennis John Cronin be summonsed before the Registrar, Federal Court at Brisbane at a time and date fixed by the Registrar, for examination about the examinable affairs of Interchase Corporation Ltd (“In Liquidation”) (ACN 010 663 993) (“Interchase”), as specified in the summonses marked “A” to “C” attached hereto, from day to day until the conclusion of the examination.
The examinees produce any books or records (being files, file notes, correspondence, diary notes, working papers, letters, copy letters or any other documents) relating to the affairs of Interchase as specified in the summonses marked “A” to “C” attached hereto, on a date which is seven (7) clear days before the dates set by the Registrar for the examinations.
The costs of and incidental to the application are costs in the winding-up.
THE COURT DIRECTS THAT:
The solicitors for the applicants serve with each summons:-
(a)a copy of an undertaking which is exhibit 1; and
(b)a letter setting out the substance of orders 1 and 2 above.
The questions put to the examinees and the answers given by the examinees from such examination shall be recorded in writing with a copy of same to be furnished to the liquidators by the Registrar.
If the liquidators require any examinee to authenticate the transcript of examination in accordance with the provisions of the Corporations Law, the Federal Court Rules and the Corporations Regulations, the examinee shall attend and authenticate the transcript or alternatively, the liquidators may authenticate the transcript of the examination of any examinee by any other means provided for in the provisions of the Corporations Law, the Federal Court rules and/or the Corporations Regulations.
The applicants and any other person affected have liberty to apply on reasonable notice.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION No NG 3018 of 1991
IN THE MATTER of INTERCHASE CORPORATION LIMITED (IN LIQUIDATION)
AND
IN THE MATTER of an application by RICHARD ANTHONY BARBER and GREGORY PAUL KELLY, Liquidators of INTERCHASE CORPORATION LIMITED (In Liquidation)
CORAM: Kiefel J
DATE: 6 June 1996
PLACE: Brisbane
REASONS FOR JUDGMENT
The liquidators of Interchase Corporation Limited seek orders under s 596B Corporations Law that five persons be summoned for examination. The examinations proposed concern the outcome of litigation in the Supreme Court of Queensland between Interchase as plaintiff and four defendants - Colliers Jardine Holdings (Qld) Pty Limited and Mr Tidbold of that company and Grosvenor Hill (Qld) Pty Limited (formerly Hillier Parker (Qld) Pty Ltd) and Mr B M Waghorn who was associated with that company at the relevant time. The action relates to valuations of the Myer retail centre in Brisbane City provided by the defendants to Interchase. It is alleged that the valuers were negligent in the advices they gave and that Interchase suffered a loss in the order of $60M together with a substantial claim for interest.
Prior to those proceedings being brought in April 1994 (they were not served until much later that year) Interchase sought and obtained orders relating to the examination of persons in connection with the then potential litigation and those orders were upheld by the Full Court see: Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301. At that point the principal purpose of the examinations and the production of documents was to enable the liquidators to make an informed decision as to whether litigation ought to be pursued. The central questions which then needed to be addressed, in light of the size of the potential claim, were the existence of any policies of professional indemnity insurance and the financial position of the defendant companies. Mr McKenna of Counsel for Interchase, who appeared both on this application and in the earlier examination, informed me that questions were not addressed then concerning whether the insurers acknowledged liability under the various policies to meet any successful claim. He explained that the claims had at that time only recently been notified.
The litigation in the Supreme Court is now well advanced. The liquidators have been ordered to pay some $750,000 as security for the costs of at least the third and fourth defendants and they will be required to provide a sum equal to $7,500 per day of hearing. Estimates for the hearing of the trial are as much as seven weeks. The costs are obviously substantial, as would be the damages if recovered in the amount claimed.
The need to or desire to ascertain whether indemnity will be extended to the defendants by their insurers has been brought about by recent statements of position received by the solicitors for the liquidators from the defendants’ legal representatives.
Since the earlier examination it has been ascertained that FAI General Insurance Company Ltd and HIH Casual & General Insurance Limited (formerly known as C E Heath Casual and General Insurance Limited) are insurers and excess insurers respectively of Colliers Jardine. The firm of solicitors who formerly acted for those two defendants have, in the last month, been granted leave to withdraw from the Supreme Court proceedings. Another firm of solicitors has recently received instructions from FAI to take over conduct of the defence on behalf of those defendants although there is some dispute about how that is to be effected. It has not yet taken place. But that insurer however has also apparently said that it reserves its rights to deny indemnity under the relevant policy. The factual basis for any such reservation of right is not revealed and the question whether the insurer is entitled to do so whilst defending the action has not been gone into. The insurer has advised in very general terms that it may rely on prejudice to it, non-disclosure, late notification and “conduct on the part of Mr Tidbold more serious than negligence”. No information had, at the time of the application, been received from HIH (C E Heath) as to whether they would accept the claim and in light of what has occurred regarding FAI there may now be some doubt about this.
The primary insurer of Grosvenor Hill is a Lloyd’s syndicate based in the United Kingdom. It does not appear to have undertaken the defence of the action in Queensland. A firm of solicitors in Queensland who some time ago advised that they acted for the excess insurers, and who also appear to be in receipt of some information concerning the stance of each of the primary and excess insurers, has advised that:
“... Insurers have confirmed indemnity for Hillier Parker (Qld) Pty Ltd [Grosvenor Hill] and B M Waghorn subject to a reservation of rights in consequence of the nature and extent of the allegations contained in the statement of claim. The terms of the reservation are confidential, but we are able to advise that the reservation applies until all investigations into the claim have been completed and all relevant circumstances are known.”
The summonses applied for would permit an examination in very wide terms “...on any matters relating to the promotion, formation, management, administration or winding up of Interchase Corporation Limited (In Liquidation)”. The documents to be produced however are limited to those relating to the policies of insurance, claims made upon them and correspondence or notices received from the insurers. The purpose of the examination, elsewhere expressed, is said to be concerned with “various aspects of the insurance policies held, in particular, whether the insurers have agreed to indemnify those parties and what is the amount which is recoverable.” If the examination of the documents to be produced were to be limited to questions as to whether indemnity was to be extended or denied and the amount which might be recovered I would have little difficulty in principle in allowing that course to be followed, although I do not fully understand why the amount recoverable has not been discovered by the policies thus far produced. However it seems clear that what is also sought to be gone into is the reason for any refusal or reservation of the right to refuse indemnity and the factors affecting the formation of such a decision.
Additionally, the liquidators seek to further examine the defendants Colliers Jardine and Grosvenor Holdings with respect to the financial position of those companies. However these were areas explored or which ought to have been explored in the earlier examinations and the only additional matter which appears to have arisen since then is the application by the Australian Securities Commission to de-register Grosvenor Holdings for failure to lodge an annual return. What enquiries have been undertaken and concluded as to this matter have not been gone into. I would not, in these circumstances, be inclined to require the same parties to attend for a further examination. There is nothing to suggest that they have not fully cooperated and to date disclosed matters relating to the financial positions of the defendants. As will also become apparent I consider there may be good reason in not extending any further examination, relating to claims made on the insurers, to the defendants themselves.
The critical area for investigation in any event is whether or not indemnities will be extended to the valuers by their insurers. The definition of “examinable affairs” extends to include Interchase’s cause of action and it is within the Court’s power to order examination and the production of documents so that the likelihood of judgment in the action being satisfied is able to be tested and the liquidators then able to determine whether it is prudent to, relevantly, maintain or conclude the litigation: Grosvenor Hill (Qld) Pty Ltd v Barber (305-7 and 311) and see also Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) 12 ACSR 513. It may be observed that providing liquidators with the opportunity to consider this goes well beyond correcting the position of disadvantage which a liquidator has in coming to a company with little knowledge of its assets, business or affairs. As was observed however in Grosvenor Hill v Barber (306) the liquidator is actually placed in a privileged position different from other litigants for the reason that the liquidator pursues what is recognised as a wider public interest in an orderly winding up for the benefit of creditors.
Once one accepts, as Grosvenor Holdings v Barber holds, that the realisation of a chose in action is an examinable affair, it follows that questions as to whether the only practicable means of achieving that can be denied also fall within that category. And documents coming within that description are also relevant to the examinable affairs of Interchase: see Grosvenor Holdings v Barber, (311) and s 597(9) Corporations Law. The question in this case is whether the discretion ought to be exercised to permit that course or whether, having regard to the litigation on foot and to the respective interests of the insurers and the insured, the defendants, it would be likely to prejudice their position and ought therefore not be permitted. It is in the area of the exercise of this discretion that I understand the refusals in Re GPI Leisure Corporation Ltd (1994) 12 ACLC 813 and Re BPTC Ltd (in liq) 14 ACSR 460, to have been based. McClelland CJ did not relate the refusals to any want of power.
However, whilst the fact of current litigation will not itself operate as a bar to examinations the potential for prejudice is obviously greater where the matters to be enquired of concern another party to the litigation. My concerns here are with respect to the possibility that an inquiry into the facts which may provide the foundation for any possible refusal of indemnity may operate to the disadvantage of the defendants. This necessarily involves some speculation. The pleadings in the Supreme Court action do not suggest areas of potential sensitivity and the protection or exclusion the insurers may seek is said to be wide ranging. At least one insurer has however identified a matter personal to one defendant. With respect to the other insurer, if the matter were limited to questions, for example as to whether the claim fell within or without the policy, that could readily have been identified. In these circumstances I feel obliged to conclude
that there may be some aspects of the insured’s conduct which may be relevant to the insurers’ views and which in turn might relate to more than just the making of the claim but extend to the circumstances giving rise to the claim. And in the context of present litigation it seems to me that a cautious attitude ought be taken in particular where, as here, it appears that the essential information can be obtained without real prejudice to the defendants.
The liquidators say they are considering whether to join the insurers to the Supreme Court proceedings to obtain declarations as to their liability to indemnify. For present purposes it is sufficient, I consider, for that course to be one which they may reasonably arguably pursue, and it is: see Gerah Imports (520). In this connection I have considered whether the liquidators ought be required firstly to challenge FAI’s assertions that it is entitled to take over the conduct of the defence of one defendant. That is in any event a matter which might be ventilated in any application to have them joined to the proceedings and I am prepared to accept that the bases for FAI’s stated position may be relevant to the question whether it can both defend and deny indemnity.
I accept that there is a real need for the liquidators to further assess the litigation in light of the insurers’ oblique responses to their insured and to take whatever steps are necessary to protect Interchase’s position with respect to any judgment debt. It does not however seem necessary that the defendants themselves be asked to comment upon the views reached by their insurers or, more to the point, the facts upon which they are based, and there are good reasons for attempting to ensure that they are not unnecessarily exposed to the making of admissions to their
prejudice (and perhaps also to their insurers’). Sufficient information ought be gained by limiting the examination to the insurers’ representatives and then as to the decision reached as to whether a claim will be met and the bases for any refusal or reservation of right.
Of the five persons then sought to be examined Mr R J Shorter who appears to be the professional indemnity claims officer with FAI; Mr Ballhausen, company secretary of HIH Casual & General Insurance Limited are persons who may be able to give information about these matters. Whilst Mr D J Cronin of the firm Ebsworth & Ebsworth have not been shown as necessarily instructed by the Lloyd’s syndicate they do apparently act for the excess insurers and are in receipt of advices from the primary insurers. He may be in a position to cast some light upon the matter as the sub-section requires (s 596B(1)(b)(ii)). It is to be noted however that they are also the solicitors for Grosvenor Hill and Mr Waghorn in the Supreme Court proceedings but, as I have said, the examination is to be limited to enquiries as to the position adopted by the insurer and the insurers’ basis for that.
The summons will be limited in paragraph 1 to the terms of the enquiries I have outlined and with directions as to acceptance or authentication of the transcript and as to the notice which ought to be given to the examinees. I shall discuss Minutes of Order with Counsel.
I certify that this and the preceding seven pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel
Associate:
Date:6 June 1996
Counsel for the applicant: Mr J McKenna
Solicitors for the applicant: Feez Ruthning
Date of Hearing: 30 May 1996
Place of Hearing: Brisbane
Date of Judgment: 6 June 1996
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