Pace Tasmania Pty Ltd (in Liquidation) v FAI General Insurance Company Limited (Provisional Liquidator Appointed)

[2001] TASSC 112

[2001] TASSC 112

CITATION:Pace Tasmania Pty Ltd (in Liquidation) v FAI General Insurance Company Limited (Provisional Liquidator Appointed) [2001] TASSC 112

PARTIES:  PACE TASMANIA PTY LTD (ACN 050 205 742)

(IN LIQUIDATION)
v
FAI GENERAL INSURANCE COMPANY LIMITED (ACN 000 327 855)
(PROVISIONAL LIQUIDATOR APPOINTED)

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  472/1995
DELIVERED ON:  12 September 2001
DELIVERED AT:  Hobart
HEARING DATE:  13 August 2001
JUDGMENT OF:  Cox CJ

CATCHWORDS:

Procedure - Discovery and interrogatories - Discovery and inspection of documents - Production and inspection - Generally - Of what particular documents - Documents in possession of person not a party - Document probably in existence - Precise terms not known by applicant - Relevance of the document to the application.

Re Sydney Formworks Pty Ltd (in Liquidation) [1965] NSWR 646; Ogilvie-Grant v East (1983) 7 ACLR 669; National Rail Corporation Ltd v HIH Casualty & General Insurance Ltd [2001] NSWSC 440; Transfield Philippines Inc v HIH Casualty & General Insurance Ltd (in Provisional Liqidation) [2001] NSWSC 347, followed.
Aust Dig Procedure [442]

REPRESENTATION:

Counsel:
           Applicant:  G L Sealy
           Respondent:  P W Tree
Solicitors:
           Applicant:  Piggott Wood & Baker
           Respondent:  Murdoch Clarke

Judgment  Number:  [2001] TASSC 112
Number of paragraphs:  8

Serial No 112/2001
File No 472/1995

PACE TASMANIA PTY LTD (ACN 050 205 742) (IN LIQUIDATION)
v FAI GENERAL INSURANCE COMPANY LIMITED (ACN 000 327 855)
(PROVISIONAL LIQUIDATOR APPOINTED)

REASONS FOR JUDGMENT  COX CJ

12 September 2001

1. The applicant has filed an application pursuant to the Corporations Act, s471B, for leave to proceed with an action commenced by it against the respondent by writ of summons issued on 5 April 1995.  The respondent is now in provisional liquidation.  The action is for reimbursement pursuant to a policy of insurance issued by the respondent of a loss sustained by the applicant in a fire which substantially damaged a hotel owned by the applicant in January 1995.  The respondent delivered a defence to the claim alleging, among other things, fraud on the applicant's part, the claim being that the fire was deliberately lit by one of its servants or agents.

1. As a matter preliminary to the hearing of the application for leave to proceed, the applicant now seeks an order from the Court that the respondent make discovery of all documents relating to any contracts or treaties of re-insurance effected by the respondent in respect of this contract of insurance.

1. Mr Tree for the provisional liquidator submits that there is no jurisdiction to make such an order, reliance for which is placed by Mr Sealy for the applicant on the Rules of the Supreme Court 2000, r388, or alternatively r394. These rules relevantly provide:

"388     (1)  If it appears to the Court or a judge that there are grounds for a belief that a document or class of document relating to any question in a proceeding may be or may have been in the possession of a party, the Court or a judge may order that party to make, file and serve an affidavit.

(2)   An affidavit is to state –

(a)  whether that document or any document of that class is, or has been, in his or her possession, custody or power; and

(b)  if the document is not in his or her possession, custody or power, when he or she parted with it and what has become of it.

…

394    (1)  The Court or a judge may order a party to produce to the Court or judge a document in the possession, custody or power of that party relating to any matter in question in a proceeding."

The latter rule clearly assumes the existence of a document before such an order can be made.  Mr Tree submits that there is no evidence before me that any such document exists and no evidence demonstrating grounds for a belief that such a document exists.  In any event, he submits that any such documents do not relate to any question in an application for leave to proceed pursuant to the Corporations Act, s471B.

1. The applicant does not claim to have knowledge of the existence of any re-insurance arrangement, but claims that there is a probability that such an arrangement exists.  Mr Sealy has handed up various matters on the public record including reasons for judgment in a number of cases in the Supreme Court of New South Wales involving the respondent company and an associated company, HIH Casualty & General Insurance Ltd, in which reference is made to the existence of re-insurance arrangements concerning the policies the subject of those proceedings.  No doubt an insurance company such as the respondent does enter into such arrangements, at least in respect of some classes of business; and I am prepared to infer that such an arrangement may well have been made in respect of a policy which, according to the statement of claim, provided for cover in respect of buildings, contents, plant, equipment and stock in the sum of just under $3,000,000 and consequential loss of nearly $750,000.  Accordingly, if such documents relate to a question in the proceedings before the Court, that is, the application under the Corporations Act, s471B, I am satisfied that there is power under the rules to order its disclosure and production on the basis that there are grounds for a belief that such documents may be or may have been in the possession of the respondent.

1. The purpose of a provision such as s471B was said by McLelland, Chief Justice in Equity, in Re Sydney Formworks Pty Ltd (in Liquidation) [1965] NSWR 646 to be:

"… to ensure that the assets of the company in liquidation will be administered in accordance with the provisions of the Companies Act and that no person will get an advantage to which, under those provisions, he is not properly entitled, and to enable the Court effectively to supervise all claims brought against the company which is being wound up." (at 649 - 650)

In Ogilvie-Grant v East (1983) 7 ACLR 669 at 671, McPherson J, delivering the judgment of the Full Court of the Supreme Court of Queensland, said of comparable legislation:

"As a matter of history, a winding up by the court was and remains today an administration conducted by the court: Re Phoenix Oil & Transport Co Ltd (No 2) [1958] 1 Ch 565, 570. Both because of this, and because it was before the Judicature Act an administration conducted in Chancery, it was inevitable that there should be restrictions on the bringing of proceedings, whether at common law or otherwise, during the course of that administration. What is substituted for litigation in the ordinary course is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a judge, who determines the appeal de novo primarily on affidavit material: Re Kentwood Constructions Ltd [1960] 1 WLR 646. There can be no doubt that ordinarily such a procedure is, and is designed to be, much more expeditious and less expensive than ordinary proceedings by way of action. If this means that it occasionally has the consequence that the attainment of perfect justice is sacrificed to expedience, it may be justified by the circumstances that on appeal it is possible under modern rules of procedure for the judge in appropriate cases to make orders for discovery and even for the delivery of pleading where it appears necessary or desirable to do so.

The question whether a claimant should be permitted to proceed by action, or should be required to submit his proof of debt and, if dissatisfied, appeal to a judge, is therefore reduced largely to one of choosing between alternative forms of procedure. The effect of s230(3) is to require the claimant to adopt the course of lodging proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute. This is really all that is meant in this context by expressions such as "convenience" and "balance of convenience" that appear in judgments on the matter: see, for example, Re The Queensland Mercantile Agency Co Ltd (1888) 58 LT 878; Stewart v Intercity Distributors Ltd [1960] NZLR 944, 946; and cf Century Mercantile Co v Auckland Provincial Fruitgrowers' Co‑operative Society Ltd [1921] NZLR 272, 276. It, of course, follows that it is quite impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, but in the past they have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed."

I will not trespass on the application itself, which is yet to be argued, but obviously one consideration will be whether the issue to be tried is a serious one and lends itself more readily to resolution by way of the trial of an action or by way of appeal from the rejection (if such be the case) of a proof of debt.

1. Mr Tree submits that the existence or non-existence of re-insurance is irrelevant to such an application. That was not the view taken by Hunter J in National Rail Corporation Ltd v HIH Casualty & General Insurance Ltd [2001] NSWSC 440 where, at par16, he said:

   "In my view, the existence of reinsurance, in relation to the class of risk the subject of the policy, is a relevant factor in granting leave to proceed, having regard to the application of s 562A of the Corporations Law (should HIH be placed into liquidation). I do not understand there to be any debate on that issue."

   Section 562A was inserted into the Corporations Act (previously Corporations Law) in 1992 and provides (subject to subs(4)) that where a company is insured under a contract of re-insurance against liability to pay amounts in respect of a relevant contract or contracts of insurance and money is received in respect of liability by the company or the liquidator under the contract of re-insurance, the proceeds are payable rateably to those entitled under the relevant contract or contracts of insurance. Subsection (4) provides that the Court may order otherwise where it is considered just and equitable in the circumstances. Mr Tree argues that the effect of s562A is, subject to subs(4) thereof, to create a pool of re-insurance moneys from which all claimants under insurance policies may share whether or not the re-insurance arrangement directly affects their particular policy of insurance. This, he submits, was the purpose of the amendment as agitation for law reform had suggested that subject to the matters addressed in subs(4) there was no just reason why some policy holders should have the benefit of re-insurance while others did not and the explanatory memorandum issued at the time the amendment was debated seems to contain an acknowledgment of that being the purpose. Nevertheless, the wording of the section is not free from ambiguity and indeed suggest to me that the funds are to be payable to holders of insurance policies which are the subject of re-insurance contracts, they being (arguably) the "relevant contracts of insurance" for the purposes of s562A. In Butterell v The Douglas Group Pty Ltd & Ors (2000) 35 ACSR 398, Young J rejected the contention that the re-insurance moneys available in that case were to be divided between all creditors under insurance policies effected with the debtor company irrespective of whether or not the re-insurance arrangement affected them and made a declaration that the re-insurance pool was for a limited class of insured. When I say he rejected the contention, I should add that none of the parties before him put that contention to him, nor had any interest to do so and he merely observed that:

   "This possibility has been considered by all the learned counsel involved and none of them support it.  Accordingly, I can just put this to one side and in due course I will answer question 1(a) 'No'" (at 402).

1. However, whether Mr Tree's contention is right or there is a possibility that the applicant may share in the re-insurance pool (if any) with fewer claimants than all other policy holders, the existence of re-insurance arrangements would place the applicant in a position of advantage compared with the general body of unsecured creditors.  The existence in a plaintiff of a prima facie entitlement to share in a pool of re-insurance funds rather than to share with all unsecured creditors would, in my view, be a factor to take into account in determining whether or not to grant such a plaintiff leave to proceed. Although his rights under s562A would not be lost by denying him leave and requiring him to lodge a proof of debt, it could significantly delay the resolution of his claim. In Transfield Philippines Inc v HIH Casualty & General Insurance Ltd (in Provisional Liqidation) [2001] NSWSC 347, another matter dealt with by Hunter J, he observed, at par29, that:

   "A successful outcome for the plaintiff in these proceedings will be an important first step towards gaining access to funds made available under s562A : assuming the defendant is placed into liquidation."

2. Accordingly, I propose to direct the respondent to make, file and serve an affidavit in accordance with the Supreme Court Rules 2000, r388, in respect of all documents relating to any re-insurance arrangement made by the respondent in respect of or otherwise affecting policy number ISR2686256 issued by the respondent to the applicant on or about 1 December 1994. I will give the parties the opportunity to speak to the minutes of the order.