McGrath & Anor as liquidators of HIH Insurance Limited (in Liq)

[2007] NSWSC 436

CITATION:	McGrath & Anor as liquidators of HIH Insurance Limited (in Liq) [2007] NSWSC 436
HEARING DATE(S):	15/03/07
JUDGMENT DATE :	4 May 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	No direction given.
CATCHWORDS:	CORPORATIONS - winding up - application by liquidators for direction - where liquidators required to answer subpoenas in criminal proceedings - very large quantity of documents - some subject to legal professional privilege - desire of liquidators to avoid expense of examining all documents - liquidators wish to produce all documents - whether appropriate matter for court's direction
LEGISLATION CITED:	Australian Securities and Investments Act 2001 (Cth), Part 3 of Division 3 Corporations Act 2001 (Cth) ss.479(3) Criminal Procedure Act 1996, s.225 HIH Royal Commission (Transfer of Records) Act 2001 (Cth) Trustee Act 1925, s.63
CASES CITED:	British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113 Carter v The Managing Partner, Northmore Hale Davy & Leake (1994) 183 CLR 121 Goldberg v Ng (1994) 33 NSWLR 639 Goldberg v Ng (1995) 185 CLR 83 Johns v Australian Securities Commission (1993) 178 CLR 408 Mercantile Credits Ltd v Dallhold Investments Pty Ltd (1994) 15 ACSR 230 Re HIH Insurance Ltd (2001) 39 ACSR 645 Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674 Re HIH Insurance Ltd (2001) 39 ACSR 645 Re HIH Insurance Ltd (2002) 20 ACLC 851 Re Lorenz’s Settlement (1861) 1 Dr & SM 401; 62 ER 433 Re McGrath as liq of HIH Insurance Ltd (2002) 41 ACSR 66 Rice v Connolly [1966] 2 All ER 649 Spotless Group Ltd v Premier Building & Consulting Pty Ltd [2006] VSCA 201
PARTIES:	Anthony Gregory McGrath and Christopher John Honey in their capacity as Liquidators of HIH Insurance Limited (in liquidation) - Applicants
FILE NUMBER(S):	SC 1799/01
COUNSEL:	Mr R.J. Weber SC - Applicants
SOLICITORS:	Blake Dawson Waldron - Applicants

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

BARRETT J

FRIDAY, 4 MAY 2007

1799/01 ANTHONY GREGORY McGRATH & ANOR IN THEIR CAPACITY AS LIQUIDATORS OF HIH INSURANCE LIMITED (IN LIQUIDATION)

JUDGMENT

1 The liquidators of HIH Insurance Limited (“HIH”) have made application under s.479(3) of the Corporations Act 2001 (Cth) for directions in relation to a matter arising in the winding up. The matter concerns documents owned by HIH and the question whether the liquidators would be justified in producing those documents in the context of pending criminal proceedings involving former officers of HIH. Committal proceedings are pending in the Local Court.

2 The defendants in the criminal proceedings have served subpoenas on HIH. In addition, Australian Securities and Investments Commission, which is in possession of the corporate records of the HIH Group as a result of production of notices issued to HIH under Part 3 of Division 3 of the Australian Securities and Investments Act 2001 (Cth) and the transfer of documents to ASIC pursuant to the HIH Royal Commission (Transfer of Records) Act 2001 (Cth), has requested HIH’s consent to disclosure of a large volume of those documents to the defendants in the criminal proceedings.

3 It has been submitted on behalf of the liquidators that the need for HIH’s consent to disclosure by ASIC arises from the decision of the High Court in Johns v Australian Securities Commission (1993) 178 CLR 408.

4 The course the liquidators have in mind in relation to the subpoenaed documents does not entail actual compliance with the subpoenas. Such compliance would entail production of the records to the Local Court, with questions of access then being for that court. Rather, the liquidators have it in mind to allow the defendants in the criminal proceedings, and their lawyers, direct access to electronically stored images of the documents. There is, of course, no compulsion to adopt such a course. In addition, it should be mentioned that the subpoenas are not effective to require the production of documents protected by legal professional privilege: Criminal Procedure Act 1996, s.225; Carter v The Managing Partner, Northmore Hale Davy & Leake (1994) 183 CLR 121.

5 The liquidators are aware that some of the documents (both those caught by the subpoenas served on HIH and those the subject of the ASIC request) are, or are very likely to be, protected by legal professional privilege. Because of the large quantities of documents involved and the significant time, trouble and expense that would be involved in inspecting each document to see whether it is, or may arguably be, subject to legal professional privilege, the liquidators would prefer simply to produce all the documents within the subpoenas without prior inspection and evaluation but, as the interlocutory process puts it, “on the basis that the documents are provided to the defendants on a strictly confidential basis for the sole purpose of assisting the defendants with the preparation of their defences in those proceedings”.

6 In relation both to the documents covered by the subpoenas and to the documents held by ASIC, the course of action contemplated by the liquidators entails production of document voluntarily and not under compulsion. Voluntary action is, it is said, consistent with a general obligation to assist in the conduct of criminal proceedings. To the extent that legal professional privilege applies, production in answer to the subpoenas would also be voluntary.

7 The liquidators’ application for directions was accompanied by detailed written submissions on issues relevant to legal professional privilege and waiver of it. These were supplemented orally by Mr Weber SC. The decision of the English Court of Appeal in British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113 was said to represent the strongest authority supporting the proposition that disclosure by the liquidators as contemplated by their application “may not result in the loss of their privilege”. That case was concerned with the production of documents to assist a criminal investigation and later a criminal trial. The Court of Appeal held, in essence, that because privileged documents had been made available only for the limited purpose of assisting the criminal investigation and subsequent criminal trial, the disclosure of them, looked at objectively, could not be construed as a waiver of the privilege.

8 As Mr Weber pointed out, the question of waiver is a “highly factual matter” on which views may easily differ. He took me to the course of litigation which culminated in the High Court’s decision in Goldberg v Ng (1995) 185 CLR 83. In that matter, Young J at first instance held that, in the particular factual context, privilege had been waived. In the Court of Appeal (Goldberg v Ng (1994) 33 NSWLR 639), Mahoney and Clarke JJA held that the privilege had been waived and Kirby P held that it had not. In the High Court, Deane, Dawson and Gaudron JJ took the same view as the majority in the Court of Appeal and Toohey and Gummow JJ took the opposite view.

9 If confirmation is needed that difficult questions arise when insistence on confidentiality co-exists with conduct inconsistent with maintaining confidentiality, it will be found in the recent decision of the Court of Appeal of Victoria in Spotless Group Ltd v Premier Building & Consulting Pty Ltd [2006] VSCA 201 where Chernov JA held one way, Neave JA held the other way and the Chief Justice agreed with Chernov JA.

10 Mr Weber made it clear that the liquidators do not expect the court to come to a firm view one way or the other on the question whether the legal professional privilege enjoyed by any relevant document will be lost if the document is dealt with in the way I have described. Indeed, I do not see how the court could do so without considering the particular document and its relevance in the context. Rather, the liquidators ask the court to say that they “would be justified” in making the disclosure, that being the form of words typically used for judicial advice to trustees and directions to liquidators, and like officials.

11 There is a close analogy between the jurisdiction the liquidators now invoke and that created by s.63 of the Trustee Act 1925: see Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674. The legislative intention behind the Trustee Act provision was said in Re Lorenz’s Settlement (1861) 1 Dr & SM 401; 62 ER 433 to be that “the Court should have the power to advise a trustee or executor as to the management and administration of the trust property in the manner which will be most for the advantage of the parties beneficially interested”.

12 The jurisdiction with respect to liquidators in insolvent winding up is thus concerned with the interests of creditors, so that the “would be justified” question really goes to what would be advantageous to creditors’ interests.

13 In the present case, the creditors have no discernible interest in the criminal proceedings – at least in the narrow sense that prosecution of those proceedings will do nothing to enhance the fund available for creditors. Nor, I think, do the liquidators have more than a moral duty or a social duty to be of assistance in relation to the due conduct of criminal proceedings: see Rice v Connolly [1966] 2 All ER 649. Their position should, in my view, be approached on the basis that the liquidators’ only immediate legal duty is to comply with the subpoenas – except to the extent that they call for the production of documents in which legal professional privilege subsists – and that, more remotely and more generally, the liquidator’s legal duty is to act in ways that are conducive to creditors’ interests.

14 On that basis, the question confronting the liquidators really centres upon the liquidators’ competing interests in preserving whatever privilege exists in the documents and avoiding the significant expenditure of time, effort and money that would be involved if all the documents had to be inspected and assessed individually.

15 The question whether legal professional privilege subsists in a particular document is obviously a question of law. But the question confronting the liquidators, in the terms I have just stated, is a commercial question. It goes to the weight or value of the entitlement to maintain privilege in the unidentified documents in which it subsists compared with the weight or value of the steps needed to assess all documents individually so as to be able to come to an informed judgment on the privilege question. The second matter is estimated by the liquidators at $840,683. They give no estimate of the first matter – no doubt because they have not identified the documents concerned, it being their aim to avoid having to do so.

16 The present application is in some ways similar to the applications that came before me when the HIH liquidators were proposing to furnish documents to the HIH Royal Commission (see Re HIH Insurance Ltd (2002) 20 ACLC 851 and Re McGrath as liq of HIH Insurance Ltd (2002) 41 ACSR 66). The course adopted there was to furnish documents on the basis of an undertaking that any document arguably subject to legal professional privilege would be returned, with no copy being kept.

17 Two points of distinction need to be mentioned. First, co-operation of the HIH liquidators with the HIH Royal Commission had been recognised by the court as presenting a distinct prospect of benefit to creditors: see Re HIH Insurance Ltd (2001) 39 ACSR 645. Second, the direction the court gave regarding provision of documents to the Royal Commission in the context of the arrangements secured by the undertaking was subject to the condition that the liquidators should form in good faith the view that documenting and implementation of that regime was or might be in the interests of the company or creditors of the company. This condition reflected an approach taken in Mercantile Credits Ltd v Dallhold Investments Pty Ltd (1994) 15 ACSR 230.

18 The present case is distinguishable in that there is no apparent advantage or benefit to the insolvent estate from giving assistance in relation to the pending criminal proceedings. Indeed, the only advantage that seems to arise from the proposed course of action is the avoidance of the need to inspect all the documents. That is quantified at $840,683. Simple value analysis would suggest that the course in contemplation should be taken if the potential disadvantage from any loss of privilege can be seen to involve less than $840,683. When matters are looked at in that way, however, the question is seen to be a commercial question. The court is in no position to judge the value of any loss of privilege. Nor is it the court’s function to do so. Furthermore and as I have said (echoing Mr Weber’s submission), the legal question of waiver of privilege in circumstances of the relevant kind is a “highly factual matter”. That, coupled with the state of the authorities, makes it inappropriate for the court to provide guidance on what is a hypothetical legal question.

19 The appropriate outcome, in my view, is that the court should not provide a direction to the liquidators.

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