Perpetual Trustee Co Ltd v Michael John Wilkins and 3 Ors - [2001] NSWSC 1192

No judgment structure available for this case.

Reported Decision:
(2002) 12 ANZ Insurance Cases 90-111

New South Wales

Supreme Court

CITATION: Perpetual Trustee Co Ltd v Michael John Wilkins & 3 Ors [2001] NSWSC 1192

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 4881/01

HEARING DATE(S): 19/10/01

JUDGMENT DATE:
21 December 2001

PARTIES :

Perpetual Trustee Company Limited ACN 000 001 007 (Plaintiff)
Michael John Wilkins (First Defendant)
David O'Bryen (Second Defendant)
Tyndall Australia Limited ACN 000 015 949 (Third Defendant)
Royal & Sun Alliance Life Assurance Australia Limited ACN 008 413 545 (Fourth Defendant)

JUDGMENT OF: Santow J

COUNSEL : P L Dodson (Plaintiff)
P M Wood (Defendants)

SOLICITORS: Henry Davis York (Plaintiff)
Freehills (Defendants)

CATCHWORDS: PROCEDURE -- Preliminary discovery of identity of insurer unsuccessfully sought under Pt 3 r 1 Supreme Court Rules on basis that arguable case not demonstrated against defendants -- Other relevant considerations such as effective remedy and viable defendant.

LEGISLATION CITED: Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s6
Supreme Court Rules Pt 3 r 1

CASES CITED: Allied Pastoral Holdings Ltd v Commissioner of Taxation [1983] 1 NSWLR 1
Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348
Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19
British Steel v Granada Television Limited [1981] AC 1096
Cambridge Credit Corporation Ltd v Lissenden (1987) 18 NSWLR 411
Cojuangco v John Fairfax & Sons Ltd (1988) 165 CLR 346
Kinzett v McCourt (1999) 32 NSWLR 32
National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400
Spain v Metropolitan Meat Industry Board [1971] 1 NSWLR 91
Stewart v Miller [1979] 2 NSWLR 128
Survival & Industrial Equipment (Newcastle) Pty Ltd v Owners of the vessel "Alley Cat" (1992) 36 FCR 129

DECISION: Preliminary discovery denied.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SANTOW J
No. 4881/01

Perpetual Trustee Company Limited ACN 000 001 007
Plaintiff
Michael John Wilkins
First Defendant
David O’Bryen
Second Defendant
Tyndall Australia Limited ACN 000 015 949
Third Defendant
Royal & Sun Alliance Life Assurance Australia Limited ACN 008 413 545
Fourth Defendant

JUDGMENT
21 December 2001
INTRODUCTION AND CONTENTIONS OF THE PARTIES

1 Is preliminary discovery available to force disclosure of the name of the insurer or of a defendant’s insurance cover? The Plaintiff seeks orders pursuant to Pt 3 r 1 of the Supreme Court Rules or under the general law for preliminary discovery. That discovery concerns the identity of the insurers to the previous manager (now in liquidation) Tyndall Funds Management Limited (“TFL”). This is for the purpose of commencing proceedings against the insurer (if there be such) pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), with the procedural requirement to obtain leave to bring such proceedings under s6(4) being necessary. That order, if granted, would require persons or companies associated with TFL to attend either themselves or through their proper officer for examination as to such matter or alternatively to produce the relevant documents identifying or describing the insurer in question.

2 Part 3 rule 1 Supreme Court Rules reads as follows:

“[3.1] Examination and production

(1) Where, on application by any person, it appears to the Court that--

(a) the applicant, having made reasonable inquiries, is unable to ascertain the identity of a person for the purpose of commencing proceedings against that person or is unable to ascertain the description of any person sufficiently for that purpose; and

(b) some person has or may have knowledge of facts, or has or may have in his possession, custody or power any document or thing, tending to assist in the ascertainment of the identity or description of the person concerned,

the Court may order that person--

(c) to attend before the Court or an officer of the Court and be orally examined on any matter relating to the identity or description of the person concerned; and

(d) to produce any document or thing in his possession, custody or power relating to the identity or description of the person concerned.”

3 I quote below the relevant orders sought from the Summons.

“1. An order pursuant to Part 3, rule 1 of the

Supreme Court Rules

or under the general law that each of the Defendants by themselves or by their proper officer attend before the Prothonotary at a time and date to be fixed and be orally examined in relation to the identity or description of the insurer or insurers, if there be any, of Tyndall Funds Limited (in Liquidation) in its capacity as manager of the trust known as the Global Property Fund.

2. An order pursuant to Part 3, rule 1 of the

Supreme Court Rules

or under the general law that each of the Defendants produce to the Court at such time and place any document or thing in his or its possession, custody or power relating to the insurer or insurers, if there be any, of Tyndall Funds Limited (in Liquidation) in its capacity as manager of the trust known as the Global Property Fund.”

4 The orders are sought by the current Trustee of the Global Property Fund Trust (“the Trust”), who replaced the previous Trustee on 10 July 2001.

5 The Defendants who oppose these orders are in the case of the First and Second Defendants respectively the Director of TFL who subsequently became its Managing Director (Mr Michael Wilkins, First Defendant) and TFL’s Company Secretary (David O’Bryen, Second Defendant).

6 The Third Defendant Tyndall Australia Limited was the ultimate holding company of TFL until about mid 1999. The Fourth Defendant, Royal & Sun Alliance Life Assurance Australia Limited (“Royal & Sun”) became the holding company of Tyndall Australia in mid 1999 and is the current holding company of TFL.

7 The Plaintiff’s contentions can be summarised as follows:

That the Plaintiff had adduced sufficient evidence to make it appear to the Court, pursuant to Part 3 rule 1, that:

(a) the Plaintiff had made reasonable inquiries but was unable to ascertain the identity of a person (in this case, an insurer) for the purpose of commencing proceedings against the insurer, alternatively, was unable to ascertain the description of the insurer for that purpose.

(b) the Defendants were persons who have, or might have knowledge of facts, or might have documents tending to assist in the ascertainment of the identity or description of an insurer;

therefore, the Court should make orders pursuant to rule 1(1)(c) and (d) and rule 1(2).

(c) The Plaintiff was not required to make out a “prima facie” case against the insurer. It was sufficient to show, in effect, that it had an “arguable” case. The test was analogous to the requirement in proceedings for an interlocutory injunction.

(d) Assuming the existence of an insurer with a policy covering the risk identified in the affidavit Mr Koops, an experienced litigation solicitor for the Plaintiff, there is a sufficiently arguable case against such an insurer for the purposes of proceedings under s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (“LRMPA”)

(e) Section 6 LRMPA (quoted at 19 below) created a two stage procedure. The first step was to seek leave to proceed against the insurer pursuant to the proviso to subsection 6(4). In the present case, information as to the identity of the insurer was sought so that an application for leave could be mounted. The second step, assuming the grant of leave, was the action for recovery against the insurer.

(i) the likelihood that there was an insurer with a responding policy;

(ii) the existence of a case for recovery of compensation against TFL sufficiently strong to justify the commencement of proceedings against it;

(iii) the inability of TFL, a company in liquidation, to meet the anticipated verdict, interest and costs.

(g) The Plaintiff was not required, in this application, to adduce evidence of its case under s6 LRMPA in the form and of the scope which may be required in proceedings under that Act.

Beneficial Finance Corporation Ltd v Price Waterhouse

Law Reform (Miscellaneous Provisions) Act

8 The Defendants’ contentions can be shortly summarised as relying on the following grounds or bases for denial of production, which I have captioned for convenient reference:

Effective remedy ground
(a) The application should fail because there was “an effective remedy” in respect of the alleged cause of action and no need to resort to a claim against an insurer. Therefore the power to order preliminary discovery ought not be exercised.

Viable Defendant ground
(b) The application should fail because there was a “viable Defendant” to the alleged cause of action, namely TFL. This meant that no leave would be granted to commence proceedings against an insurer pursuant to s6(4) LRMPA. As the prospects of success under s6 LRMPA were hopeless due to the existence of a “viable Defendant” there was no justification for orders for preliminary discovery.

Insufficient evidence of cause of action ground
(c) There was insufficient evidence of the existence of a cause of action against TFL to justify any proceedings against any insurer of TFL.

General law leads to same result
(d) The power to make orders for preliminary discovery under the general law was no wider than, or is narrower than the power conferred by the Rules. Therefore, if the Plaintiff fails under Part 3, it must fail under the general law.

Elaboration of these four grounds and the Plaintiff’s response are dealt with later.

ESSENTIALLY AGREED FACTS

Plaintiff’s evidence

9 I now set out below what is a largely agreed (or not seriously disputed) summary of facts prepared by the Plaintiff. However, where there is dispute on the part of the Defendants, it is identified where this is not self-evident.

(a) The Plaintiff is the current trustee of the Global Property Fund Trust (“the Trust”). The Plaintiff was appointed and National Mutual Life Nominees Limited ("the former trustee") retired on 10 July 2001 (see HSK1 – deed of retirement and appointment). The Trust was constituted by deed dated 12 April 1984, which was varied on 31 August 1994 (see Affidavit of Harland Koops sworn 4 October 2001; also Ex. HSK2).

(b) AGP Management Limited (“AGPM”) became manager of the Trust in February 1998 and is the current manager of the Trust.

(c) Tyndall Funds Limited (in Liquidation) (“TFL”) (formerly known as Global Funds Limited) was the manager of the Trust until it was replaced by AGPM in February 1998. (see Ex. HSK3). TFL is currently in members voluntary liquidation. d avid John Frank Lombe is the liquidator of TFL (Aff. H Koops, annexure B - notification of appointment dated 29 November 2000). Neither Mr Lombe nor TFL is a Defendant to this summons.

(d) The First Defendant, Michael John Wilkins became a director of TFL on 31 May 1995 and was the managing director of TFL from about May 1995 until February 1998 (see Ex. HSK3).

(e) The Second Defendant, Mr David O’Bryen is the company secretary of TFL and was appointed to this position on 20 November1991 (see Ex. HSK3).

(f) The Third Defendant, Tyndall Australia Limited ("Tyndall Australia") was the ultimate holding company of TFL until about mid-1999. (Ex. HSK4).

(g) Tyndall Australia became the ultimate holding company of TFL in about July 1995 (para 11, Affidavit of H Koops).

(h) In about mid-1999 the Fourth Defendant, Royal & SunAlliance Life Assurance Australia Limited (“Royal & Sun”), became the holding company of Tyndall Australia. It is the current ultimate holding company of TFL. (Ex. HSK5).

(i) Mr Wilkins was appointed as a director of Tyndall Australia on 16 January 1990 (Ex. HSK4). He was appointed as managing director of Tyndall Australia by 1995 and retained that appointment at 26 March 2001. He was appointed as a director of Royal & Sun on 23 July 1999 (Ex. HSK5). He was appointed managing director of Royal & Sun on 1 January 2000 and retained that appointment on 30 March 2001.

(j) Mr O'Bryen was appointed as the company secretary of Tyndall Australia on 15 January 1998 (Ex. HSK4)

Outline of potential trust claim
(k) Over the last 12 months, AGPM as the manager of the Trust has undertaken an investigation into the previous management of the Trust by TFL. The Plaintiff’s solicitor, Mr Koops, is a partner in the firm Henry Davis York and has been engaged in the conduct of commercial litigation since 1990. He has been directly involved in carrying out the investigation and has gained personal knowledge of information provided to the Plaintiff and AGPM by the former trustee and TFL. These documents are primarily trust business records and related instruments created between 1994 and 1998. Mr Koops has also examined reports filed with the ASIC which relate to the management of the Trust.

(l) Mr Koops’ investigations have been mainly concerned with an investment of trust funds made by the former trustee in 1994 by which finance was provided for the construction at Chatswood of a shopping complex known as the Mandarin Centre (“the Mandarin Centre Development”).

(i) By 1991, Mandarin International Developments Pty Limited ("MIDL"), purchased property at Chatswood. By May 1994, pursuant to TFL's express recommendation, the former trustee agreed with MIDL to develop the property jointly.

(ii) By a trust deed dated 16 May 1994, a unit trust known as the Mandarin Centre Trust was established as the vehicle for the execution of the Mandarin Centre Development. IOOF Australia Trustees (NSW) Limited ("IOOF") was appointed as the trustee and TFL was appointed as the manager of the Mandarin Centre Trust.

(iii) Pursuant to the express recommendations of TFL, the former trustee executed numerous instruments in May 1994 relating to the Mandarin Centre Development. By means of these instruments, the former trustee acquired as Trust property 50% of the units in the Mandarin Centre Trust for $9,200,000. The former trustee used Trust assets for this acquisition.

(iv) A unitholders' agreement was entered into in May 1994. (Ex. HSK6)

(v) In order to provide additional finance for the development IOOF borrowed $27.7 million. This money was borrowed from the trustee of the trust known as the Trustee Income Fund (“the lender”), which was managed by a corporation associated with or related to TFL, namely Tyndall Funds Management (Vic) Limited.

(vi) Documents which Mr Koops examined record that the directors of TFL knew that the profitability of the Mandarin Centre Development depended upon the amount of rent which would be obtained by leasing the Mandarin Centre when it was constructed and it was a precondition to the provision of any loan funds that leases for 85% of the Mandarin Centre be executed.

(vii) It was a precondition to the provision of any loan funds that leases for 85% of the complex be executed.

(viii) In or about November 1994, by reason of the express recommendations of TFL to the former trustee, contracts for the construction of the Mandarin Centre Development were entered into. The contracts were entered into at a time when significantly less than 85% of the leases in respect of the Mandarin Centre Development had been executed.

(ix) In correspondence dated November 1995, TFL recommended that the unitholders' agreement dated 27 May 1994 be varied. The correspondence records that practical completion of the Mandarin Centre Development was scheduled for 27 November 1995, at which time less than 75% of the relevant lettable space of the complex would be committed and that only 30% to 40% per cent of the complex would fitted out for occupation. The document records TFL’s estimate that the value on completion of the development would be $50.93 million against an estimated cost in excess of $53 million. TFL recorded that the Trust faced a potential loss of about $1 million.

(x) On 28 June 1996 the former trustee entered into a deed of variation to the unitholders' agreement. By reason of this variation the former trustee was obliged to subscribe for additional units of the Mandarin Centre Trust to a value of $1,279,800 to provide funds to meet cost overruns in respect of the development.

(xi) On completion of the development, MIDL, which was a major lessee of the premises, fell substantially into arrears of rent. Contrary to the stated intention in the unitholders’ agreement dated 27 May 1994, the Mandarin Club Limited did not establish a licensed club in the complex.

(xii) From about September 1996, IOOF fell into arrears of interest payable under the loan. On about 4 April 1997 notices of default and a section 57(2)(b) notice were served on IOOF as a result of its default under the loan.

(xiii) In about September 1997 the former trustee entered into an agreement with the lender by which the lender agreed to withdraw notices served on IOOF in respect of arrears of interest of $2,327,078.41 which had accrued under the loan. In return, the lender was granted an option to require the former trustee as trustee of the Trust to purchase the interest debt at face value. This constituted an encumbrance on Trust assets.

(xiv) In or about September 1997 the former trustee sold its units in the Mandarin Centre Trust for $3 million which, after taking into account the liability referred to in (13) above, constituted an effective net sale price of $672,921.60.

(xv) The total principal loss suffered by the Trust as a result of its investment in the Mandarin Centre Development is approximately $10,555,278.

Causes of Action
(n) On the basis of his examination of the documents referred to above, Mr Koops has formed the view and has informed the Plaintiff and AGPM that the investment of the Trust funds in the Mandarin Centre Development as described above can be shown to have been inappropriate and speculative and to have occurred in breach of the terms of the Trust Deed. He has formed the view that the Plaintiff has a sufficiently strong case to justify the commencement of proceedings against the former trustee, TFL and certain of its directors claiming restoration of trust assets and damages arising from breaches of duty, breaches of terms of the Trust deed and breach of fiduciary duty. The breaches are constituted by TFL’s recommendations to the former trustee concerning investment in the Mandarin Centre Development and TFL’s failure to recommend to the former trustee that the investment be terminated at an earlier time than ultimately occurred. (Clearly the Defendants dispute that view.)

(o) The Plaintiff has instructed Mr Koops to commence proceedings against TFL, among others, claiming compensation for the loss of trust assets brought about by TFL's conduct and the conduct of certain of its directors.

(p) The Third and Fourth Defendants’ position which was communicated to the Plaintiff, is that the allegations made are without substance (Annexure “R2” to the affidavit of Mr Koops).

Inability of TFL to satisfy a judgment in the proposed claim
(q) In a “Declaration of Solvency” lodged with ASIC on 22 November 2000 three directors of TFL estimated and declared that TFL’s surplus, after paying its debts in full, was $1,072,483 (Annexure B, affidavit of Mr Koops).

(r) Mr Koops has formed the view that the damages or equitable compensation recoverable in respect of the primary claim which is proposed to be brought against TFL is the entirety of the principal loss suffered by the Trust in connection with its investment in the Mandarin Centre Development. That loss is about $10,555,278. If this sum is recovered by litigation in this Court, interest calculated in accordance with the Supreme Court Rules would also be sought. Such interest currently amounts to about $7,283,699.

Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946

Law Reform (Miscellaneous Provisions) Act

1946

Amount of liability to be charge on insurance moneys payable against that liability

6(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up.

(3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:

Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.

(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.

(6) Any payment made by the insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part contained.

(7) No insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured.

(8) Nothing in this section shall affect the operation of any of the provisions of the

Workers Compensation Act

1987 or the

Motor Vehicles (Third Party Insurance) Act

1942.

(9) Despite subsection (8), this section applies in relation to a policy of workers compensation insurance entered into by an employer (whether entered into before or after the commencement of this subsection), where the employer:

(a) being a natural person, has died, or is permanently resident outside the Commonwealth and its Territories, or cannot after due inquiry and search be found, or

(b) being a corporation (other than a company that has commenced to be wound up), has ceased to exist, or

(c) being a company, corporation, society, association or other body (other than a company that has commenced to be wound up), was at the time when it commenced to employ workers to which the policy relates incorporated outside the Commonwealth and its Territories and registered as a foreign company under the laws of any State or Territory and is not so registered under any such law, or

(d) being a company, is in the course of being wound up.

(i) companies such as TFL to obtain and maintain insurance cover for the risks associated with the carrying on of a trust management business; and

(ii) holding companies of companies such as TFL (and in turn, their holding companies) to obtain “group” insurance cover which identifies subsidiary companies and their directors as persons whose liability is covered by such policies, where companies in the group are involved in the business of trust management.

Attempts to ascertain the identity of any relevant insurers
(u) The Plaintiff will seek to join as a Defendant in the proceedings to be commenced against TFL any insurer which is a party to a policy of insurance falling within the terms of s6 of the Law Reform (Miscellaneous Provisions) Act1946 .

(v) Enquiries have been made on behalf of the Plaintiff to determine whether any insurer has entered into a relevant policy of insurance and, if so, the identity of any such insurer. Correspondence passing between Mr Lombe and Mr Koops shows that at the present time Mr Lombe does not have information which could identify or lead to the identification of any relevant insurer.

(w) On 8 August 2001 Mr Lombe (liquidator of TFL) wrote to Mr Koops (Annexure D affidavit of Mr Koops) stating that Mr Koops’ letters of 12 March 2001 and 14 June 2001 (which enclosed an Amended Proof of Debt) contained “a number of allegations which, at this stage, are unsupported by any evidence”. Mr Lombe stated that before he could rule on the Amended Proof of Debt he would need to obtain further information from Mr Koops. Mr Lombe also stated that if Mr Koops' client did not intend to commence the proceedings which were foreshadowed on 12 March 2001 they were invited to submit such evidence as they considered relevant to support the claims made. The reply on 14 August 2001 (Annexure F affidavit of Mr Koops) according to the Defendants did not provide any new or further information and there was no evidence that any further information has been provided to the liquidator.

"We are as frustrated as you are in trying to identify the insurer. We are endeavouring to do so but are not being helped by people we think would know. Mr Lombe is being mucked around. We believe there is insurance, but my client has been unsuccessful in getting that information."

(y) Since 28 August 2001, Mr Koops has received no further communication from Mr Lombe or his solicitor and has formed the view that at the present time Mr Lombe does not have information which could identify or lead to the identification of any relevant insurer.

“Between May 1994 and late 1997 Tyndall Funds Limited invested substantial funds from the Global Property Fund in a development known as the Mandarin Centre Development in Chatswood. The development resulted in substantial losses to the fund.

Our clients claim that the investment of trust funds by Tyndall Funds Limited in the Mandarin Centre Development was negligent, hazardous, speculative and was a breach of trust. We have been instructed to commence proceedings in the Supreme Court of New South Wales for recovery of the losses to the fund resulting from the investment by Tyndall funds Limited in the Mandarin Centre Development.”

Each letter contained the following request for information:

“1. Do you have any information as to the existence of any policy of insurance in favour of Tyndall Funds Limited which may provide cover in respect of the claims identified above?

2. Please identify or describe insurer under any such policy so far as you are able and also identify the company or person who has custody or control of any such policy.”

The first two Defendants have not responded and the third and fourth Defendants have declined to provide the information sought.

(i) Information concerning the insurance position of those Defendants was confidential to them;

(ii) the information was not relevant to the foreshadowed proceedings;

(iii) they could not see from Mr Koops’ letter any legitimate basis for the request for information or for seeking the orders compelling production of information including orders for examination of persons on oath;

(iv) the Plaintiff and AGPM had made bare allegations unsupported by particulars or evidence and which they were instructed were without substance;

(v) the confidentiality of the insurance position of Freehills’ client and its subsidiaries was sufficient justification for not providing the information sought;

(vi) TFL was in members voluntary liquidation and was not insolvent;

(vii) it was not certain that TFL would be unable to satisfy any judgment in proceedings which might be commenced: it had substantial assets and Mr Koops’ clients had not established any entitlement to damages in the sum claimed or at all;

(viii) it was premature to seek access to details concerning the insurance position of TFL before commencing proceedings and the mere fact that TFL might not be able to satisfy the full amount of the claim, if the claim was totally successful did not alter that position.

Beneficial Finance Corporation Limited v Price Waterhouse

(x) the proper Defendant to the foreshadowed proceedings was TFL and if Mr Koops’ clients considered that they had a valid claim, they should commence and plead that claim in the usual way.

(bb) Mr Koops has deposed to his belief that the Defendants have, or may have, either knowledge of facts, or documents in their possession, custody or control, which would assist in ascertaining the identity of any relevant contracts of insurance and therefore any relevant insurer.

Defendants’ evidence
(cc) The Defendants adduced no evidence and did not object to the evidence of the Plaintiff. Mr Koops was not required to attend for cross-examination on his affidavit.

RESOLUTION OF ISSUES BETWEEN THE PARTIES

10 I turn now to four grounds relied upon by the Defendants (see 8 above) to resist preliminary discovery (the last being more in the nature of a riposte) and deal with them under their respective captions. It is convenient to deal with the first two grounds together.

EFFECTIVE REMEDY AND VIABLE DEFENDANT

11 The Plaintiff elaborates its case for the orders sought, first by contending that it had adduced sufficient evidence to make it appear to the Court, pursuant to Part 3 rule 1, that:

(a) the Plaintiff had made reasonable inquiries but was unable to ascertain the identity of a person (in this case, an insurer) for the purpose of commencing proceedings against the insurer, alternatively, was unable to ascertain the description of the insurer for that purpose.
(b) the Defendants were persons who have, or might have knowledge of facts, or might have documents tending to assist in the ascertainment of the identity or description of an insurer.

I would accept that submission, though it does not of course suffice of itself, to satisfy all the requirements of Pt 3 r1. In particular there remains the requirement to demonstrate an arguable case against the Defendants (as to which see later).

12 Again the Plaintiff then contends that, assuming the existence of an insurer with a policy covering the risk identified in the affidavit of Mr Koops, who I accept to be an experienced litigation solicitor, for the Plaintiff, there is a sufficiently arguable case against such an insurer for the purposes of proceedings under s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (“LRMPA”). I would accept that proposition subject to the important caveat that it depends first on demonstrating an arguable case against the Defendants, as to which see later.

13 Section 6 LRMPA created a two stage procedure. The first step was to seek leave to proceed against the insurer pursuant to the proviso to subsection 6(4). In the present case, information as to the identity of the insurer was sought so that an application for leave could be mounted. The second step, assuming the grant of leave, is the action for recovery against the insurer. The Plaintiff is not required to do more than show such a case would not be a futility. Again I accept that proposition, though the same caveat remains relevant,

14 The principle applied in Beneficial Finance Corporation Ltd v Price Waterhouse (that courts as a matter of principle will not permit plaintiffs to join insurers to proceedings, where proceedings have been commenced against an insured and there is no denial of liability by the insurer) is, I accept, not applicable to the present case. In South Australia, there is no right of direct action against an insurer. That state has no equivalent to the legislation in New South Wales consisting of s6 of the Law Reform (Miscellaneous Provisions) Act 1946 conferring a direct cause of action against the insurer, with leave of the Court, where the conditions for it have been made out. That, as was said in Beneficial Finance Corporation, such insurance matters are confidential can be accepted, but that does not pre-empt the Court’s discretion under s6 LRMPA.

15 The Defendants correctly point out that leave (under the Corporations Act) to proceed against TFL is not an obstacle on the present state of authority (but see the commentary to the contrary based on English authority in Robson’s Annotated Corporations Law, 5th edition, Vol 1 at 600), nonetheless practicalities must bear also upon the availability of an “effective remedy”. Thus the fact that TFL is in liquidation, with a forecast surplus of $1,072,483 is not, as the Defendants submit, sufficient to demonstrate “an effective remedy”. The Plaintiff has (assuming arguable claim in its favour) a claim in which the verdict, interests and costs may substantially exceed $18 million. I would accept that a maximum recovery of only about 5% of the total claim (including interest from costs) is not to have an effective remedy; see Cojuangco v John Fairfax & Sons Ltd (1988) 165 CLR 346 at 357, quoted below:

“What an applicant must show is that the order sought is necessary in the interests of justice; in other words, the making of the order is necessary to provide him with an effective remedy of the actionable wrong of which he complains. Where an applicant complains of a defamatory publication in a newspaper a court will refuse an order for preliminary discovery if it appears that the applicant has an effective remedy in respect of the actionable wrong of which he complains.”

might

would

Defamation Act

NSW

16 The Plaintiff’s further argument takes issue with the Defendants’ contention that, because if an insurance policy exists, the Plaintiff will be fully protected by the statutory charge, therefore it must follow that the Plaintiff “would enjoy the same effective priority over the proceeds of that policy as it would in the suit under s6(4) of the LRMP Act.”

17 The Plaintiff correctly points out that in practical terms, were it to be denied joinder of the insurer and be faced with an insurer which took issue about liability, it would then either have to rely upon the liquidator to enforce that liability, or itself have to bring a separate action. This would detract from the effectiveness of any remedy by reason of adverse consequences from having to bring two sets of proceedings as follows:

18 Moreover, to say that if an insurance policy exists, the Plaintiff will still have the benefit of any charge, is not only to deny the purpose of s6 LRMPA of providing the prospect of joinder and direct action with leave of the Court, more especially in a context where liquidation may create complications otherwise. It also leaves the Plaintiff with no certainty of knowledge as to whether there is an insurance policy and its availability.

19 It is true that in Beneficial Finance Corporation Limited & Ors v Price Waterhouse, Lander J, at 42, emphasised that particulars of an insurance policy would likely contain a good deal of information that is highly confidential with the consequences of publicity being potentially “a magnet for claims”. However, that consideration has been subordinated for the last 50 years in New South Wales to the policy behind s6 LRMPA: Giles JA writing extra-judicially (“Reflections of Section 6” (1996) 7 Ins LJ 152 at 155) describes how the cases have approached the matter in these terms:

“There has developed a perceived wider purpose in section 6, to ensure that the third party does not fail to get compensation for the legal wrong done to him because the wrong-doer is hard to get at or not worth much. I put it in very general terms, but I think as a sufficiently accurate summation of the way the cases have gone.”

20 While therefore the consequences may be to expose what is otherwise thought a matter of legitimate commercial confidentiality to a litigant with an adverse interest, the Plaintiff rightly contends that the legislature in New South Wales, in contrast to South Australia, has made that policy choice.

21 The Plaintiff also points to other problems which may be created by the liquidation of TFL. The Plaintiff relies upon the uncontested fact that the Defendants have already “mucked around” the liquidator and have vigorously defended the present summons, taking a number of possible points.

22 It would be quite unrealistic to expect the Plaintiff to call on the liquidator, in circumstances where the liquidator does not admit the Defendants’ claim, to exercise examination power to extract the relevant information about the identity of the insurer.

23 Moreover, the overriding purpose in Pt 1 r 3(1) of Supreme Court Rules for the “just, quick and cheap” resolution of dispute is itself an important consideration in determining whether to exercise its discretion under Pt 3 r 3(1). That said, I agree with the Defendants that that overriding purpose does not eradicate the requirements of Pt 3 r1, for an arguable case.

Conclusion

24 I am satisfied that the Plaintiff has done sufficient to refute the proposition that it has an effective remedy without the order sought under Pt 3 r 1.

25 I turn now to consider whether any action under s6 of LRMPA would be doomed to failure on the basis that there was already a viable defendant in TFL.

26 The considerations to which I have earlier made reference as regards whether the Plaintiff has an effective remedy against TFL are also relevant in answering that question.

27 In Kinzett v McCourt (1999) 32 NSWLR 32 at 47 Spigelman CJ, as part of a special five member bench, explains the practice under s6(4) approving the statement of Moffitt P in National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 at 403, quoted below:

“The practice under s6(4) is to refuse leave to proceed against an insurer, wherever the insured is a viable defendant:

Andjelkovic v AFG Insurance Ltd

(1980) 47 FLR 348 at355-356;

Cambridge Credit Corporation v Lissenden

(at 422);

Dixon v Royal Insurance

(1991) 105 ACTR 18;

New South Wales Medical Defence Union Ltd v Crawford

(at 489-490), per Kirby P;

FAI General Insurance Co Ltd v McSweeney

(1997) 73 FCR 379 at 418-419.

…..

In

New South Wales Medical Defence Union Ltd v Crawford

, Sheller JA quoted with approval the statement by Moffitt P in

National Mutual Fire Insurance Co Ltd v Commonwealth of Australia

[1981] 1 NSWLR 400 at 403:

‘… the legislative purpose of s6 is to provide for the person to whom the insured is liable direct access to the insurance fund, in those cases where enforcement might be frustrated unless such direct access were available.’”

28 Where there is an “available” defendant against whom a claim will be “effective” there is of course no need to grant leave under s6(4); Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348 at 355-6 per Blackburn CJ. However, it is settled that leave should be granted where the insured is not “solvent” with “liquid assets” (Spain v Metropolitan Meat Industry Board [1971] 1 NSWLR 91 at 97 per Isaacs J). Clarke J in Cambridge Credit Corporation Ltd v Lissenden (1987) 18 NSWLR 411 at 420 observed:

“… the legislature appears to have been primarily concerned at the financial situation of the insured. For instance, the legislation endeavours to eliminate or minimise the problems that

may be created

by the liquidation of an insured against whom a claim is pending.”

29 The Court of Appeal in Kinzett v McCourt (supra), accepted as the applicable test that the court will provide the applicant with “direct access to the insurance fund in those cases where enforcement might be frustrated unless such direct access were available.” [emphasis added]

30 It is clear that enforcement of the Plaintiff’s claim (assuming it is arguable) “might be frustrated” because of the “problems that may be created by the liquidation” of TFL. This is unless it were provided with the insurance details as would permit it to proceed against the insurer rather than against TFL, if there be such an insurer and on obtaining the necessary leave under s6(4) of LRMPA. As to whether such leave would be granted, that depends on the answer to the next question; Does the plaintiff have an arguable case against the Defendants?

Insufficient evidence of cause of action ground

31 The Defendants contend that the evidentiary foundation for a sufficiently arguable case against TFL and thus the insurer, is itself not made out. In particular the Defendants have asserted that insufficient evidence for the application for preliminary discovery is afforded by Mr Koops’ summary of facts, his conclusions and his “unreasoned” opinions. For the reasons I elaborate below, I agree with that conclusion.

32 The Plaintiff relies strongly on the undoubted fact that none of the evidence from Mr Koops was objected to and no countervailing evidence adduced. I would moreover accept Mr Koops’ expert qualification. Mr Koops was not cross-examined, he being the only witness for the Plaintiff in this action.

33 The Plaintiff then contends that the Court cannot now be asked to decline to accept the inconvenient parts of Mr Koops’ evidence or the inferences which properly arise from that evidence; “Cross on Evidence” by D Byrne and H D Heydon at para 17460; Allied Pastoral Holdings Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 26. However, that still leaves the question, does Mr Koops’ evidence amount to an arguable case?

34 I accept that the Plaintiff is not required, at this stage, to do more than lead sufficient evidence to demonstrate, in effect, that there is a serious question to be tried as to the alleged breaches of trust and contract. Nor is the Plaintiff required to adduce the “best evidence” of the facts which it may be required to prove in the later proposed proceedings. This was accepted by Sheppard J in Stewart v Miller [1979] 2 NSWLR 128. This was so, though the plaintiff’s ultimate cause of action was based on inferences drawn from limited evidence and that facts might exist which would put a totally different complexion on the matter (at 132). Sheppard J was thus satisfied on what was circumstantial evidence that the applicants for preliminary discovery had demonstrated a “reasonable prospect of succeeding in an action against one or more of the [prospective defendants]” (at 139).

35 But to all of this the Defendants respond that there was no need to do other than take Mr Koops’ evidence at its highest because, looking at that evidence, it did not establish even an arguable case. It is likewise not wholly uncommon in the analogous case of an application for an interlocutory injunction or to set aside a statutory demand similarly to take unchallenged evidence of the claimant and demonstrate that it still falls short of an arguable case

36 In order to test the matter, I need to quote from the relevant part of Mr Koops’ affidavit of 4 October 2001 to be found at paragraphs 19 to 22, which I do below:

“19. The information I have obtained may be summarised as follows:

(a) By 1991, Mandarin International Developments Pty Limited (“MIDL”), purchased property at Chatswood. By May 1994, the former trustee agreed with MIDL to develop the property jointly.

(b) By a trust deed dated 16 May 1994, a unit trust known as the Mandarin Centre Trust was established as the vehicle for the execution of the Mandarin Centre Development. IOOF Australia Trustees (NSW) Limited (“IOOF”) was appointed as the trustee and TFL was appointed as the manager of the Mandarin Centre Trust.

(c) Pursuant to the express recommendations of TFL, the former trustee executed numerous instruments in May 1994 relating to the Mandarin Centre Development. By means of these instruments, the former trustee acquired as Trust property 50% of the units in the Mandarin Centre Trust for $9,200,000.

(d) A unitholders’ agreement was entered into in May 1994. Exhibited to me at the time of swearing this affidavit and marked “HSK6” is a true copy of the unitholders’ agreement dated 27 May 1994.

(e) In order to provide additional finance for the Mandarin Centre Development, IOOF borrowed $27.7 million (“the loan”). This money was borrowed from the trustee of a trust known as the Trustee Income Fund, which was managed by a corporation associated with or related to TFL, namely Tyndall Funds Management (Vic) Limited.

(f) Documents which I have examined record that the directors of TFL understood that the profitability of the Mandarin Centre Development depended upon the amount of rent which would be obtained by leasing the complex when it was constructed.

(g) It was a precondition to the provision of any loan funds that leases for 85% of the complex be executed.

(h) In or about November 1994, by reason of the express recommendations of TFL to the former trustee, contracts for the construction of the Mandarin Centre Development were entered into.

(i) The contracts for the commencement of the construction of the Mandarin Centre Development were entered into at a time when significantly less than 85% of the leases in respect of the Mandarin Centre Development had been executed.

(j) In correspondence dated November 1995, TFL recommended that the unitholders' agreement dated 27 May 1994 be varied. The correspondence records that practical completion of the Mandarin Centre Development was scheduled for 27 November 1995, at which time less than 75% of the available retail space of the complex would be committed and that only 30% to 40% of the complex would fitted out for occupation. The document records TFL's estimate that the value on completion of the complex would be $50.93 million against an estimated cost in excess of $53 million. TFL recorded that the Trust faced a potential loss of about $1 million.

(k) On 28 June 1996 the former trustee entered into a deed of variation of the unitholders' agreement. By reason of this variation the former trustee was obliged to subscribe for additional units of the Mandarin Centre Trust to a value of $1,279,800 to provide funds to meet cost overruns in respect of the Mandarin Centre Development.

(1) On completion of the complex, MIDL, which was a major lessee of the premises, fell substantially into arrears of rent. Contrary to the stated intention in the unitholders' agreement dated 27 May 1994, the Mandarin Club Limited did not establish a licensed club in the complex.

(m) From about September 1996, IOOF fell into arrears of interest payable under the loan. On about 4 April 1997 notices of default and a section 57(2)(b) notice were served on IOOF as a result of its default under the loan.

(n) In about September 1997 the former trustee entered into an agreement with the trustee of the Trustee Income Fund by which the trustee of the Trustee Income Fund agreed to withdraw notices served on IOOF in respect of arrears of interest of $2,327,078.41 ("the Interest debt") which had accrued under the loan. In return, the trustee of the Trustee Income Fund was granted an option to require the former trustee as trustee of the Trust to purchase the Interest debt at face value. This constituted an encumbrance on the Trust assets.

(o) In or about September 1997 the former trustee sold its units in the Mandarin Centre Trust for $3 million which, after taking into account the liability referred to in 19(n) above, constituted an effective net sale price of $672,921.60.

(p) The total principal loss suffered by the Trust as a result of its investment in the Mandarin Centre Development is approximately $10,555,27.

Causes of Action

20. On the basis of my examination of the documents referred to above, I have formed the view and have informed the plaintiff and AGPM that the investment of the Trust funds in the Mandarin Centre Development as described above can be shown to have 'been inappropriate and speculative and to have occurred in breach of the terms of the Trusf Deed.

21. I have formed the view that the plaintiff has a sufficiently strong case to justify the commencement of proceedings against the former trustee, TFL and certain of its directors claiming restoration of trust assets an damages arising from breaches of duty, breaches of terms of the Trust deed and breach of fiduciary duty. The breaches are constituted by TFL’s recommendations to the former trustee concerning investment in the Mandarin Centre Development and TFL’s failure to recommend to the former trustee that the investment be terminated at an earlier time than ultimately occurred.

22. I have been instructed by the plaintiff to commence proceedings against TFL, among others, claiming compensation for the loss of trust assets brought about by TFL's conduct and the conduct of certain of its directors.”

37 It will be apparent that the form of Mr Koops’ reasoning is, as the Defendants contend, summary and conclusionary with no evidence as to the critical matters noted below:

(i) there is no evidence of the source of the supposed express recommendations of TFL referred to in paragraph 19(c) and (h);

(ii) there is no evidence that the pre-condition for 85% letting of the complex was anything other than a requirement of the third party lender (and see (vi) below;

(iii) that 85% pre-letting was a requirement of the lender is simply stated by way of assertion, with no evidentiary basis for that recorded;

(iv) there is no identification of the specific provisions of the trust deed which are said to have been breached, simply the bald statement that the relevant investment “can be shown to have been inappropriate and speculative and to have occurred in breach of the terms of the trust deed” with no evidential backing beyond that bald assertion, moreover in circumstances where Mr Koops is not shown to be an expert in non-legal financial matters of that sort;

(v) there is no evidence as to why it would be hazardous or speculative for TFL to enter into a property development without there being, prior to commencement of construction, executed leases for 85% of the complex; and

38 The Defendants point out that all that paragraph 19 of Mr Koops’ affidavit demonstrates is that Global Property Fund Trust apparently lost $10,555,278 by investing in units in the Mandarin Centre Trust and entering into a put option in respect of a debt, and that the Mandarin Centre Trust engaged in an unsuccessful property development. That, as the Defendants say, does not reveal the basis for an allegation of wrongdoing by TFL to the point where there is at least an arguable case. Subparagraphs 19(f) to (i) of Mr Koops’ affidavit do not of themselves show or suggest breaches by TFL of the kind alleged. The pre-condition referred to in paragraph 19(g), if indeed it was a pre-condition, was a pre-condition of a third party, namely the Trustee of the Trustee Income Fund referred to in paragraph 19(e), as I have already pointed out.

39 I agree that the claim is fairly described at this point as “speculative”, in the absence of further substantiation. That is further borne out by the fact that the Plaintiff’s solicitors told the liquidator of TFL as of 12 March 2001 that their client intended to commence proceedings against TFL (page 15 of Mr Koops’ affidavit) yet not only has that not occurred but there is no explanation as to why. Moreover, on 8 August 2001 the liquidator of TFL wrote to the Plaintiff’s solicitors stating the solicitor’s letters of 12 March 2001 and 14 June 2001 (which enclosed an Amended Proof of Debt) contained “a number of allegations which, at this stage, are unsupported by any evidence”. The liquidator stated that before he could rule on the Amended Proof of Debt he would need to obtain further information from the solicitors, and that if their client did not intend to commence the proceedings which they had foreshadowed on 12 March 2001 he invited them to submit such evidence as they considered relevant to support the claims made (page 15 of Mr Koops’ affidavit).

40 The Plaintiff’s reply on 14 August 2001 did not provide any new or further information (page 17 of Mr Koops’ affidavit). The Defendants state that in that context, there is nothing to suggest that if the liquidator received proper details in substantiation of the Plaintiff’s claim, he would do other than pursue whatever rights TFL had against any insurer whose policy responded to the claim, utilising if necessary his powers or rights under ss530B, 546A, 596B and 596a of the Corporations Act 2001.

Conclusion

41 The Defendants have successfully established that the Plaintiff has failed to establish at least an arguable case as to the existence of a cause of action against TFL. Such arguable case must be a prerequisite to enabling any proceedings against any insurer of TFL to have sufficient prospect of receiving the necessary leave under s6(4) of LRMPA.

General law leads to same result

42 The above caption represents the Defendants’ submission that the general law is not in any relevant respect, wider than the jurisdiction conferred by Part 3 rule 1 Supreme Court Rules. I do not need to determine this question beyond reaching the conclusion, as I do, that in the absence of an arguable case, neither at general law nor under the Supreme Court Rules would the Plaintiff be entitled, certainly as a matter of discretion and probably as a matter of jurisdiction, to the orders sought. In saying that, I do not need in particular to reach any conclusion as to whether it is necessary for there to be litigation against the unknown person; compare British Steel v Granada Television Limited [1981] AC 1096 where Lord Wilberforce appears to take the view that at general law pre-trial discovery was not restricted to situations where litigation against the unknown person was to occur. I also note that the decision of Sheppard J in Survival & Industrial Equipment (Newcastle) Pty Ltd v Owners of the vessel “Alley Cat” (1992) 36 FCR 129 at 138-9 expressed the view, in a passage which appears obiter, that the general law principles relating to discovery of the identity of a possible defendant before trial were co-extensive with the corresponding Federal Court Order 4 rule 17.

43 Be that as it may, I do not consider that at general law there is any basis upon which the Plaintiff can succeed in the orders it seeks, given the absence of at least an arguable case at this point.

OVERALL CONCLUSION

44 The orders sought by the Plaintiff pursuant to Part 3 rule 1 of Supreme Court Rules or under general law are denied on the basis that the Plaintiff has failed to establish at least an arguable case against TFL. This determination should not preclude a future application by the Plaintiff at a point where its claim is sufficiently substantiated to demonstrate at least an arguable case. While one way of doing so would be to commence proceedings with an appropriate substantiation of the basis of claim, I should not be taken as stating that this is a pre-requisite, if otherwise such a case could be substantiated.

45 Costs prima face should follow the event though I give leave to the parties to address me on costs if they wish.

46 I direct that the parties submit orders giving effect to this judgment by 14 February 2002.

**********

Last Modified: 12/24/2001

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Citations

Perpetual Trustee Co Ltd v Michael John Wilkins and 3 Ors [2001] NSWSC 1192

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CITATION:	Perpetual Trustee Co Ltd v Michael John Wilkins & 3 Ors [2001] NSWSC 1192
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4881/01
HEARING DATE(S):	19/10/01
JUDGMENT DATE:	21 December 2001
PARTIES :	Perpetual Trustee Company Limited ACN 000 001 007 (Plaintiff) Michael John Wilkins (First Defendant) David O'Bryen (Second Defendant) Tyndall Australia Limited ACN 000 015 949 (Third Defendant) Royal & Sun Alliance Life Assurance Australia Limited ACN 008 413 545 (Fourth Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	P L Dodson (Plaintiff) P M Wood (Defendants)
SOLICITORS:	Henry Davis York (Plaintiff) Freehills (Defendants)
CATCHWORDS:	PROCEDURE -- Preliminary discovery of identity of insurer unsuccessfully sought under Pt 3 r 1 Supreme Court Rules on basis that arguable case not demonstrated against defendants -- Other relevant considerations such as effective remedy and viable defendant.
LEGISLATION CITED:	Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s6 Supreme Court Rules Pt 3 r 1
CASES CITED:	Allied Pastoral Holdings Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348 Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19 British Steel v Granada Television Limited [1981] AC 1096 Cambridge Credit Corporation Ltd v Lissenden (1987) 18 NSWLR 411 Cojuangco v John Fairfax & Sons Ltd (1988) 165 CLR 346 Kinzett v McCourt (1999) 32 NSWLR 32 National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 Spain v Metropolitan Meat Industry Board [1971] 1 NSWLR 91 Stewart v Miller [1979] 2 NSWLR 128 Survival & Industrial Equipment (Newcastle) Pty Ltd v Owners of the vessel "Alley Cat" (1992) 36 FCR 129
DECISION:	Preliminary discovery denied.