Re Addstone Pty Ltd (in liq); Ex parte Macks

[1998] FCA 1680

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE – confidential documents in application for approval for funding arrangement under s 479(3) of Corporations Law – whether documents should be released to creditors – conditions under which documents released.

Corporations Law ss 477(2), 477(6), 479(3), 588FF(1), 588FF(3)

Re Addstone Pty Ltd (Mansfield J, 8 December 1998, unreported), considered
Harman v Secretary of State for the Home Department [1983] 1 AC 280, applied
Ainsworth v Hanrahan (1991) 25 NSWLR 155, considered
Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217, considered
Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576, applied
Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10, applied
Telnet Pty Ltd v Takapana Investments Pty Ltd (1994) 51 FCR 520, considered
Otter Gold Mines Ltd v McDonald (1997) 76 FCR 467, considered
Central Queensland Cement Pty Ltd v Hardy [1989] 2 QdR 509, considered

IN THE MATTER OF ADDSTONE PTY LTD (IN LIQUIDATION) ACN 010 764 997

PETER IVAN MACKS

SG 3080 of 1995

MANSFIELD J
ADELAIDE
23 DECEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 3080of  1995

IN THE MATTER OF ADDSTONE PTY LTD (IN LIQUIDATION) ACN 010 764 997
PETER IVAN MACKS APPLICANT
JUDGE:	MANSFIELD J
DATE OF ORDER:	23 DECEMBER 1998
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1. Peter Ivan Macks (“the liquidator”) file and serve on Glenmore Park Estate Ltd (formerly EFG Finance Ltd), Elfic Ltd and Lensworth Properties Pty Ltd by their solicitors copies of his affidavits sworn on 17 and 20 February 1998 and the exhibits to those affidavits, save that the liquidator may by masking or by removal from those affidavits or exhibits delete reference to any material which the liquidator regards as constituting confidential information.

1. Liberty to the liquidator and to Glenmore Park Estate Ltd (formerly EFG Finance Ltd), Elfic Ltd and Lensworth Properties Pty Ltd to apply.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 3080 of 1995

IN THE MATTER OF ADDSTONE PTY LTD
(IN LIQUIDATION) ACN 010 764 997

PETER IVAN MACKS
APPLICANT

JUDGE:	MANSFIELD J
DATE:	23 DECEMBER 1998
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

This is a notice of motion by Fosters Brewing Group Limited, Glenmore Park Estate Limited, Elfic Limited, Lensworth Properties Pty Ltd (In Liquidation), Kinglingstone Pty Ltd, Caloundra Downs Pty Ltd, Caboolture Waters Pty Ltd, Mango Hill Development Pty Ltd, John Francis O’Grady and John Daniel Crosby (“the applicant creditors”) for orders:

1. That paragraphs 2 and 3 of  the orders made by the Court on 20 February 1998 be discharged or set aside;

1. That paragraph 1 of the orders made by the Court on 11 March 1998 in respect of the affidavit of Christopher Anthony Charles sworn 11 March 1998 be discharged or set aside;

1. That paragraphs 1, 2 and 3 of the orders made by the Court on  11 March 1998 be discharged or set aside;

1. That Peter Ivan Macks (“the liquidator”) provide to the applicants all material relied upon by him in support of the further hearing of his notice of motion dated 17 February 1998.

It is necessary to explain the nature of the application in a little more detail.

The liquidator is the liquidator of Emanuel Management Pty Ltd (In Liquidation) and sixty-three other companies known as the Emanuel Group (“the Emanuel Group”). He applied pursuant to s 479(3) of the Corporations Law (“the Law”) for directions as to whether he had the power under s 477(2)(c) of the Law to enter into certain proposed arrangements and transactions with a view to procuring funding (“the proposed funding arrangement”) for the conduct of certain litigation on behalf of the Emanuel Group, in particular proceedings numbered 2420 of 1996 in the Supreme Court of South Australia against EFG Finance Ltd and others, and in proceedings numbered 167 of 1997 in the Supreme Court of South Australia against Coopers and Lybrand, a firm, and another (together, “the subject proceedings”). On 9 June 1998, the Court ordered that he had power under the Law to enter into the proposed funding arrangement, then identified as being the arrangement and transactions reflected in the documents annexed to his affidavit sworn on 29 May 1998. To accommodate s 477(6) of the Law, that order gave the liquidator, creditors and contributories of the Emanuel Group liberty to apply. Reasons for that decision were published at that time.

In support of his application, the liquidator had relied inter alia on a long affidavit sworn by him on 17 February 1998, two shorter affidavits sworn by him on 20 February 1998, and a further affidavit sworn by him on 10 March 1998.  He also relied upon an affidavit of Christopher Anthony Charles sworn on 11 March 1998.  Orders were made in the course of the hearing of that application on 20 February 1998 and 11 March 1998, and it is those orders to which the present motion is directed.  The particular orders which the present motion seeks to set aside related to the confidentiality of those affidavits, and to the orders that the motion be heard in camera.  The overall effect of those orders was that:

1. The affidavits of the liquidator of 17 February 1998 (comprising 32 paragraphs) and the two of 20 February 1998 and his further affidavit of 10 March 1998 and their respective annexures, remain sealed until further order of the court.  [There was a shorter affidavit of the liquidator also of 17 February 1998 to which the orders in question did not apply.]

1. The affidavit of Christopher Anthony Charles of 12 March 1998 remain on the file in a sealed envelope marked “Confidential – not to be opened unless directed by a Judge” and not be available for inspection,

1. The notice of motion was heard in camera and the transcript of the hearing remains confidential until further order of the Court.

1. The period within which the liquidator of each and all of the Emanuel Group having a relation-back day in relation to its and their winding up which was 23 March 1995 may make an application under subsection 588FF(1) of the Law be extended up to, and including, 5 May 1998 pursuant to subsection 588FF(3)(b) of the Law.

The applicant creditors, in effect, seek access to the material upon which the liquidator relied in procuring the directions and order of 9 June 1998.  As I noted in my reasons for decision at that time, the applicant had not prior to his application sought the approval of the creditors of the Emanuel Group as a body to the proposed funding arrangement.  One issue which those reasons addressed was the significance of that circumstance in relation to the application.  The liquidator had explored through the principal creditors of the Emanuel Group the funding of the subject proceedings, but he had not been able to obtain funding from those sources. 

On 5 June 1998, the applicant creditors (other than the personal applicants John Francis O’Grady and John Daniel Crosby) were served with proceedings numbered 411 of 1998 issued in the Supreme Court of South Australia (“the fresh proceedings”). In the fresh proceedings the applicant seeks against those applicant creditors orders pursuant to s 588FF(1) of the Law. The fresh proceedings are a refined version of the Supreme Court proceedings referred to above in Action 2420 of 1996. The applicant creditors also seek an order setting aside the order made on 11 March 1998 extending the time within which the liquidator may make an application pursuant to s 588FF(1) of the Law, but before doing so, they seek access to the material relied upon by the applicant in support of that application. The liquidator on the current motion has deposed to the fact that the fresh proceedings were instituted within time, so that the order made on 11 March 1998 in that regard is not relied upon for the purposes of maintaining the fresh proceedings.

In a separate application in the liquidator’s administration of the Emanuel Group, the liquidator also sought directions under s 479(3) that he had the power under s 477(2)(c) to enter in a funding proposal to conduct Supreme Court of South Australia Actions 409 and 410 against certain firms of solicitors. One of those defendant firms, also a creditor of the Emanuel Group, was heard on that application, in accordance with s 477(6) of the Law which provides:

“The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and any creditor or contributory, or the Commission, may apply to the Court with respect to any exercise or proposed exercise of any of those powers.”

It was contended by the liquidator on that application that the defendant firm did not in reality wish to exercise any right as a creditor, but to participate only in its capacity as a defendant in the action brought against it.  Before ruling on that opposition, I required the liquidator to make available to that defendant firm the affidavit material relied upon on the application, and the exhibits to that affidavit material (including the proposed funding arrangements).  I permitted the liquidator to mask or remove from that material any information which the liquidator regarded as confidential.  Such information would clearly include any opinions of counsel as to the prospects of success in, or as to the tactical considerations relating to, the litigation in question and material relating to those topics.  It might also, as was contemplated, encompass certain details of the proposed funding arrangement to the extent to which they might provide to a defendant in that proceedings or some other proceeding some insight into the level of funding or the terms of funding which might be of strategic or tactical significance in the conduct of the defence in any such proceeding.  Subsequently the defendant firm, having received and reviewed that material indicated that it did not wish to make any further submission in opposition to the application (see Re Addstone Pty Ltd, 8 December 1998).

Consequently, in that matter, it did not become necessary to address the extent to which that creditor should be permitted to participate in the hearing, including the extent to which it should be given access to material relied upon by the liquidator on his application.  It would obviously be disadvantageous to the liquidator, and to the creditors of the Emanuel Group, if the exercise of the right to be heard on such an application resulted in the disclosure of


confidential material which would or could be of benefit to that creditor in another capacity in relation to the conduct of the proposed litigation.

On this application, the applicant creditors indicated that at present they are seeking similar access to that which was provided in that proceeding. They do not in other respects presently press the orders sought on the motion.

The liquidator accepts, for the purposes of the motion, that Glenmore Park Estate Ltd (formerly EFG Finance Ltd), Elfic Ltd and Lensworth Properties Pty Ltd (together “the EFG Group”) are creditors of one or more of the Emanuel Group so as to be eligible to be heard in accordance with the liberty reserved in the orders of 20 February 1998 and 11 March 1998 and in accordance with s 477(6) of the Law. As the applicant creditors, including the EFG Group, have common solicitors the liquidator also accepts, for the purposes of the motion, that it would be sterile to consider discretely the status of the applicant creditors other than the EFG Group for the purposes of considering which have standing on the motion.

There was an exchange of correspondence between solicitors for the applicant creditors and for the liquidator which culminated in the liquidator proposing by letter of 27 October 1998:

“1.We would provide the documentation on the basis outlined in our letter dated 13 October 1998 with various parts masked in order to preserve their confidentiality.

2.The disclosure of the information is without prejudice to our client’s right to claim legal professional privilege and confidentiality in respect of the documentation provided.

3.Given that your clients’ application for access to the documentation in respect of the Orders referred to in paragraphs 1 and 2 of the Notice of Motion dated 4 August 1998 is being brought pursuant to their right as a creditor under section 477(6) of the Corporations Law, your client shall only be entitled to use the information released in its capacity as creditor and not as a defendant in the Supreme Court actions currently instituted by our client.

4.Given that our client does not intend to rely on the Order referred to in paragraph 3 of your clients’ Notice of Motion, no documentation concerning that order will be disclosed.

5.Your clients reserve their right to later press for disclosure of part or all of the material over which confidentiality is claimed.

6.Each party to bear their own costs.”

The letter of 13 October 1998 identified the affidavits relied upon by the liquidator in obtaining the order made on 9 June 1998, and offered to provide copies of those affidavits and the annexures, except to the extent that they contained material which he considered to be confidential.  Subsequent correspondence reveals a potential dispute as to the nature and scope of what the respective parties acknowledge to be confidential.  In the light of the orders I propose to make, it will remain to be seen whether there is in reality such a dispute.  The nature of the material regarded by the liquidator as confidential will be apparent from the material to be made available, and I will reserve to the applicant creditors liberty to apply so as to preserve to them the opportunity to challenge any particular claim to confidentiality of the liquidator. 

There was really only one remaining issue of contention between the parties, namely the requirement that the applicant creditors should only be entitled to use the information provided in the capacity as creditors, and not as defendants to the new Supreme Court action.  I do not think it is necessary to accede to the liquidator’s submission that I should impose that condition at this point.  The order to produce the information in issue will be the equivalent of an order for discovery.  The normal implied undertaking that the documents will not be used other than in respect of any application exercising further the liberty to apply reserved to the creditors when orders were made on 9 June 1998, and not to use those documents for a collateral purpose, will therefore apply: Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10; Harman v Secretary of State for the Home Department [1983] 1 AC 280; Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576. That implied undertaking has been held to apply in respect of documents produced under subpoena by a non-party: Telnet Pty Ltd v Takapana Investments Pty Ltd (1994) 51 FCR 520, and to documents produced to the Administrative Appeals Tribunal under summons: Otter Gold Mines Ltd v McDonald (1997) 76 FCR 467. I see no reason why it should not apply in respect of material directed to be disclosed by the Court. In Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217, Wilcox J applied that undertaking to a statement exchanged between parties as proposed evidence, but which was not in fact adduced in evidence. His Honour noted that Central Queensland Cement Pty Ltd v Hardy [1989] 2 QdR 509 was to the same effect, as was Ainsworth v Hanrahan (1991) 25 NSWLR 155 in relation to answers to interrogatories.

Whether or not the applicant creditors seek later to be released from that undertaking is a matter for them.  If such an application is made, it will be addressed in the light of the material then before the Court: cp Telnet (above), Otter Gold Mines (above).

I direct that the liquidator file and serve on the applicant creditors by their solicitors copies of his affidavits sworn on 17 and 20 February 1998 and the exhibits to those affidavits, save that the liquidator may by masking or by removal from those affidavits or exhibits delete reference to any material which the liquidator regards as constituting confidential information.  I will fix a time for the liquidator to comply with that order.  The motion is otherwise adjourned to a date to be fixed, with liberty to the parties to call it on on reasonable notice.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield

Associate:

Dated:             

Counsel for the Applicant:	Mr R J Whitington QC with him Mr P Slattery
Solicitor for the Applicant:	Ward & Partners
Counsel for the Respondent:	Mr J Sheehan SC
Solicitor for the Respondent:	Kelly & Co
Date of Hearing:	27 October 1998
Date of Judgment:	23 December 1998