Kelly, Gregory Paul & Anor (Liquidators of Interchase Corporation Ltd (in liq)) v Ballhausen, William John

[1996] FCA 968

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )

QUEENSLAND DISTRICT REGISTRY     )    No. QG 183 of 1996

GENERAL DIVISION                 )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GREGORY PAUL KELLY and

ANTHONY BARBER

Liquidators of INTERCHASE CORPORATION LTD (in liquidation)

Appellant

AND:

WILLIAM JOHN BALLHAUSEN

Respondent

CORAM:    COOPER, SACKVILLE, FINN, JJ.
PLACE:    BRISBANE
DATE:     7 NOVEMBER, 1996

REASONS FOR JUDGMENT

THE COURT:
This appeal raises a narrow issue devoid of any question of principle. On 6 June 1996, Kiefel J, on the ex parte application of the appellants, the liquidators of Interchase Corporation Ltd, ordered that the respondent, William John Ballhausen, be summoned for examination under s.596B of the Corporations Law. The respondent, who is a claims officer employed by HIH Casualty and General Insurance Ltd ("HIH"), in turn later sought to have Kiefel J. discharge the summons. An order to that effect was made by her Honour on 6 August 1996. The present appeal is against that order.

Background
Interchase Corporation Ltd ("Interchase") was the owner of the Myer Retail Centre in Brisbane City.  It has commenced litigation in the Supreme Court of Queensland against a number of defendants, including Colliers Jardine Holdings (Qld) Pty Ltd ("Colliers").  The claim relates to allegedly negligent valuations of the Myer Centre.  The loss said to have been suffered is in the order of $60 million.

Colliers is not a company of substantial means.  Its insurers and excess insurers are respectively FAI General Insurance Company Ltd ("FAI") and HIH.

The liquidators in the Supreme Court proceedings have been ordered to pay $750,000 as security for costs.  Substantial additional costs will be incurred if the litigation proceeds.  In this state of affairs the liquidators desired to ascertain whether FAI and HIH would, as insurers, indemnify Colliers, doubt apparently having arisen in this matter.

The Application for a Summons
The Corporations Law, s.596B provides, relevantly:

"The Court may summon a person for examination about a corporation's examinable affairs if:

(a)an eligible applicant applies for the summons; and

(b)the Court is satisfied that the person:

...

(ii)may be able to give information about examinable affairs of the corporation."

On 30 May 1996 the liquidator filed an amended ex parte application in this Court for a summons under s.596B to the respondent as company secretary of HIH.

The terms of the summons sought were (inter alia) as follows:

"1.You [i.e. Mr Ballhausen] are required to attend before the Court at the time and place specified below and from day to day until the conclusion of your examination, to be examined on oath or affirmation on any matters relating to the promotion, formation, management, administration or winding up of INTERCHASE CORPORATION LIMITED (IN LIQUIDATION) ("Interchase"). (Emphasis added.)

While prepared to make an order under s.596B, Kiefel J. refused to accede to a summons in the terms proposed. In her reasons for judgment of 6 June 1996, her Honour accepted that the status of the indemnity under the policies Colliers had with FAI and HIH did bear upon the real value of the cause of action that Interchase was pursuing against Colliers. Hence it was for s.596B purposes, an "examinable affair". Nonetheless, her Honour considered that, with litigation already afoot, and with the potential for prejudice where the matters to be inquired into by the liquidators concerned other parties to the litigation, the scope of the examination ought be limited. As her Honour said in her reasons:

"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."

Accordingly, the terms of the inquiry in respect of which the Court ordered the respondent to be summoned - as distinct from the terms proposed (see above) - were that:

"1.You are required to attend the Court at the time and place specified below and from day to day until the conclusion of your examination, to be examined on oath or affirmation on the following matters concerning the examinable affairs of INTERCHASE CORPORATION LIMITED (IN LIQUIDATION) ("Interchase"), that is to say:

(a)whether HIH Casualty & General Insurance Ltd has extended or denied or intends to extend or deny indemnity to Colliers Jardine (Qld) Pty Ltd and Michael George Tidbold in relation to any liability they may have to Interchase;

(b)the facts, matters and circumstances relevant to any decision (whether made or yet to be made) by HIH Casualty & General Insurance Ltd as to whether to extend or deny indemnity."

The Notice of Motion to Set Aside the Ex Parte Order and Summons
On 9 July, the respondent initiated proceedings to have the orders and summons set aside.  In contested proceedings before her Honour the only additional evidence adduced was an affidavit of a solicitor and employee of HIH, which stated as follows (inter alia):

"8.HIH has made no decision as to whether it will accept or deny liability to indemnify its insured under either of the said policies.

9.HIH has been informed by FAI, the primary insurer, that FAI has made no decision as to whether it will accept or deny liability to indemnify the insured under any policy issued by FAI to the insured.

10.It is the market practice in general for an excess insurer not to conduct its own investigations into the circumstances of a claim under a liability policy or into issues regarding the grant or refusal of indemnity and HIH has followed that practice and not conducted any independent investigations into this claim.

11.HIH has received no information from FAI regarding any investigations conducted by or on behalf of FAI into the circumstances of the claim or into any issues concerning the grant or refusal of indemnity.

12.when [sic] FAI makes a decision about indemnity, HIH will consider its position and make a decision about indemnity at the earliest practicable time.

13.HIH has not been asked by the insured to confirm that it is liable to indemnify the insured."

As already noted, Kiefel J ordered that the summons be discharged.  In her reasons for judgment, her Honour accepted she had power to order an examination as to whether payment was likely to be made under the policies of insurance.  Nonetheless, the real focus of the application was, in her view, "as to what might likely be achieved by the examinations".  The brief reasons her Honour gave in dealing with the respondent's motion - it was one of a number to be disposed of - need to be considered in the light of this observation.  Those reasons can be set out in full.

"The utility of the examination of Mr Ballhausen, for the excess insurer, is put on a rather different basis.  The evidence adduced by Mr Ballhausen discloses that that insurer has made no investigations of its own at all.  Indeed it has not been asked to confirm the availability of excess cover.  It will not make a decision or carry out any investigation until after FAI decides.

It seems to me that good ground has been shown why an examination is likely to be pointless and that the true focus of any enquiry at present is FAI.  In terms of the section I am unable to hold that Mr Ballhausen may be able to provide the information sought.  It may be that there are communications between FAI and the excess insurer which are relevant to the liquidators' enquiries, but these may be ascertained from FAI.  That leaves the possibility that the excess insurer may have received oral advices from FAI, but one is now in the realm of speculation.

The Appeal
The appellant's case is that, as HIH has documents (a) which relate to its policy with Colliers and which would assist the liquidators in determining whether Colliers has an enforceable right to an indemnity from HIH, and (b) which may otherwise be relevant to that inquiry, it is in a position "to give information about examinable affairs of [Interchase]": s.596B(1)(b)(ii).

Such may well be the case.  But the issue before Kiefel J. was not whether the respondent might be able to give information on any examinable affair of the company.  As we have already noted, the ex parte order made by Kiefel J on 6 June did not leave at large the examinable affairs on which the respondent could be examined.  Those "affairs" were clearly
circumscribed.  We have already set out the relevant terms of the summons.  The two paragraphs ((a) and (b)) which set out the subject matter of the proposed examination relate in different ways to any decision made or yet to be made by HIH to extend or deny indemnity to Colliers.  The issue before her Honour was whether the summons in that form should be set aside.  There was no motion before her Honour seeking to amend the summons.

Given the circumscribed scope of the summons, we can find no error in the conclusion reached by her Honour.  With no decision on the indemnity made or under consideration - and such was the uncontroverted evidence - it is unsurprising that Kiefel J concluded that she was "unable to hold that Mr Ballhausen may be able to provide information sought" on the decision made or yet to be made on the indemnity.  The summons clearly contemplated that the provision of indemnity would be under active consideration by HIH, even though a decision might not yet have been made.  It did not contemplate an examination on issues in the realm of speculation.  As her Honour rightly concluded, on the evidence before her the examination was likely to be pointless.

The documents referred to by the applicants may well be ones to which HIH would have regard if, indeed, it is ever required to make a decision on the indemnity.  We put this matter this way because the question of indemnity may never arise if, as seems the case, HIH's liability is contingent in any event on the liability of FAI being established.  FAI, as we were informed, has since denied that it is obliged to indemnify Colliers under the terms of its policy.

The point we wish to emphasise is that not only has the "examinable affair" on which the examination envisaged by the summons is premised not yet occurred, it may well never occur.

Accordingly, we dismiss the appeal with costs.

I certify that this and the preceding 7 pages are a true copy of the reasons for judgment of the Court.

Associate.

Date: 7 November, 1996

Heard:5 November, 1996

Place:            Brisbane

Decision:         7 November, 1996

Appearances:

Counsel for the

Appellant:Mr R.N. Chesterman QC; Mr J.D. McKenna

Solicitors for
the Appellant:     Allen, Allen & Hemsley

Counsel for the
Respondent:       Mr S.S.W. Couper QC

Solicitors for
the Respondent:    Gadens Ridgeway