Re JN Taylor Holdings Ltd (In Liq) - [2007] SASC 193

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
Re: JN TAYLOR HOLDINGS LIMITED (IN LIQ)
[2007] SASC 193
Judgment of The Honourable Justice Debelle
25 May 2007
PROCEDURE - COURTS AND JUDGES GENERALLY - COURTS - PROCEEDINGS IN OPEN COURT OR IN CAMERA
Application by liquidator for leave to compromise debt – application that the hearing be in closed court - whether court has power to close court – in what circumstances court will close court – whether court has power to seal up confidential documents and other material adduced in evidence.

CORPORATIONS - WINDING UP - LIQUIDATORS
Companies – winding up – liquidator’s application for leave to compromise debt – whether application should be heard in closed court – relevant principles – leave granted.
Corporations Act 2001 (Cth) s 477(2A), s 477(2B), s 596A, s 596B; Evidence Act 1929 s 69, s 69A; Supreme Court Act 1935 s 46A, s 131; Civil Procedure Act 2005 (NSW) s 6(2), s 71; Corporations Rules 2003 R 1.8, R 11.3; Supreme Court Rules 1987 R 62.07; Supreme Court Rules 2006 R 9, referred to.
Andrew v Raeburn (1874) LR 9 Ch App 522; Attorney-General v Leveller Magazine Ltd [1979] AC 440; Australian Broadcasting Commission v Parish (1980) 29 ALR 228; re Chase Corporation (Australia) Equities Pty Ltd (1990) 8 ACLC 1118; re GA Listing and Maintenance Pty Ltd (1994) 15 ACSR 308; re HIH Insurance Ltd [2004] NSWSC 5; re HIH Insurances Ltd [2005] NSWSC 731; re HIH Insurance Ltd [2007] NSWSC 498; re Mineral Securities Australia Ltd [1973] 2 NSWLR 207; re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83; re Walker Hare Pty Ltd (in liq) [1968] VR 447; Russell v Russell (1976) 134 CLR 495; Scott v Scott [1913] AC 417; State Bank of NSW v Turner Corporation Trust (1994) 14 ACSR 480, applied.
Badische Anilin Und Soda Fabrik v Levinstein (1883) 24 Ch D 156; Chapman v Luminis (No 4) (2001) 123 FCR 62; Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109; David Syme & Co Ltd v General Motors-Holden’s Ltd [1984] 2 NSWLR 294; McLachlan v Australian Stock Exchange Ltd (No 2) [1998] SASC 7005; Mellor v Thompson (1886) 31 Ch D 55; R v Chief Registrar of Friendly Society; ex parte New Cross Building Society [1984] QB 227; re A Former Officer of ASIO [1987] VR 875; re Gate Gourmet Australia Pty Ltd (in liq) (2005) 23 ACLC 834; re Parker (deceased); Bagot’s Executor & Trustee Company Ltd v King [1948] SASR 141; TK v Australian Red Cross Society (1989) 1 WAR 335; Woolworths Ltd v Olson (2004) 184 FLR 121, considered.

RE: JN TAYLOR HOLDINGS LIMITED (IN LIQ)
[2007] SASC 193
Civil

DEBELLE J. This is an application by a liquidator for leave to compromise a debt and for leave to enter into an agreement to effect that compromise where the agreement will operate for more than three months. The application is made pursuant to s 477(2A) and s 477(2B) of the Corporations Act 2001(Cth).
The liquidator also applies for orders to protect the confidentiality of the agreement for which he seeks the court’s approval. To that end, he applies for orders that this application be heard in closed court and for an order that the affidavits filed in support of the application be sealed up and not be available for inspection by any person unless this court makes an order permitting inspection.
The application was listed for hearing before a Master of this court. He expressed doubts as to the propriety of closing the court and whether the affidavits in support of the applications and exhibits to those affidavits were confidential and, if so, whether that material should be placed in a sealed envelope. The Master referred the application to a judge of this court.
There are essentially issues four issues for consideration, namely,
1whether the court has power to close the court;
2if it has, in what circumstances will it do so;
3the power of the court to seal up confidential documents and other material adduced in evidence; and
4whether the court should make orders pursuant to s 477(2A) and s 477 (2B) of the Corporations Act.
I deal first with the questions relating to the power to close the court and preserve the confidentiality of the affidavits and other documents adduced in evidence.
The Principle of Open Justice
It is a well settled principle of the common law that the courts must administer justice publicly and in open court: Scott v Scott [1913] AC 417 at 436 to 437; Attorney-General v Leveller Magazine Ltd [1979] AC 440 per Lord Diplock at 450; Russell v Russell (1976) 134 CLR 495 per Gibbs J at 520. The reason for these principles was expressed by Gibbs J in Russell v Russell in these terms:
It is the ordinary rule of the Supreme Court, as of the other courts of the nation, that their proceedings shall be conducted “publicly and in open view” (Scott v Scott). This rule has the virtue that the proceedings of every court are fully exposed to public and professional scrutiny and criticism, without which abuses may flourish undetected. Further, the public administration of justice tends to maintain confidence in the integrity and independence of the courts. The fact that courts of law are held openly and not in secret is an essential aspect of their character. It distinguishes their activities from those of administrative officials, for “publicity is the authentic hall-mark of judicial as distinct from administrative procedure” (McPherson v McPherson). To require a court invariably to sit in closed court is to alter the nature of the court. Of course there are established exceptions to the general rule that judicial proceedings shall be conducted in public. (Citations omitted).
The principle has been consistently applied in this court: see, for example, McLachlan v Australian Stock Exchange Ltd(No 2) [1998] SASC 7005.
Exceptions to the Principle
At the same time, there are exceptions to the rule. On those occasions, the court will exercise its inherent powers to control its proceedings and close the court. Those exceptions are grounded on what Viscount Haldane LC described in Scott v Scott (at 437-438) as the more fundamental principle that the chief object of courts of justice must be to ensure that justice is done. He said:
While the broad principle is that the Courts of this country must, as between parties, administer justice in public, this principle is subject to apparent exceptions, such as those to which I have referred. But the exceptions are themselves the outcome of a yet more fundamental principle that the chief object of Courts of justice must be to secure that justice is done. In the two cases of wards of Court and of lunatics the Court is really sitting primarily to guard the interests of the ward or the lunatic. Its jurisdiction is in this respect parental and administrative, and the disposal of controverted questions is an incident only in the jurisdiction. It may often be necessary, in order to attain its primary object, that the Court should exclude the public. The broad principle which ordinarily governs it therefore yields to the paramount duty, which is the care of the ward or the lunatic. The other case referred to, that of litigation as to a secret process, where the effect of publicity would be to destroy the subject-matter, illustrates a class which stands on a different footing. There it may well be that justice could not be done at all if it had to be done in public. As the paramount object must always be to do justice, the general rule as to publicity, after all only the means to an end, must accordingly yield. But the burden lies on those seeking to displace its application in the particular case to make out that the ordinary rule must as of necessity be superseded by this paramount consideration. The question is by no means one which, consistently with the spirit of our jurisprudence, can be dealt with by the judge as resting in his mere discretion as to what is expedient. The latter must treat it as one of principle, and as turning, not on convenience, but on necessity.
See also Lord Loreburn at 445-446, Lord Atkinson at 450 and Lord Shaw at 482-483. Lord Diplock expressed the same view in Attorney-General v Leveller Magazine Ltd at 450 in these terms:
However, since the purpose of the general rule is to serve the ends of justice it may be necessary to depart from it where the nature or circumstances of the particular proceeding are such that the application of the general rule in its entirety would frustrate or render impracticable the administration of justice or would damage some other public interest for whose protection Parliament has made some statutory derogation from the rule. Apart from statutory exceptions, however, where a court in the exercise of its inherent power to control the conduct of proceedings before it departs in any way from the general rule, the departure is justified to the extent and to no more than the extent that the court reasonably believes it to be necessary in order to serve the ends of justice.
Consistently with the principle that there is a more fundamental principle that prevails over the principle of open justice, namely, that the chief object of courts of justice is to ensure that justice is done, courts will not sit in public if to sit in public would destroy the subject matter of the dispute: Andrew v Raeburn (1874) LR 9 Ch App 522 per Lord Cairns LC at 523, approved in Scott v Scott at 436 and 450 (but see Lord Shaw at 481).
In Andrew v Raeburn, the plaintiff had applied for an order to restrain the defendant from publishing letters exchanged between the plaintiff and a third party. The proceedings were heard in camera and an injunction ordered. The Court of Appeal refused an application to hear the appeal in camera because it was possible to determine the issues without reading the correspondence. However, if the position had been otherwise, the Court of Appeal might have sat in camera. Lord Cairns expressed the reasons of the court in these terms:
If it appeared to me that this was a case in which a hearing in public would cause an entire destruction of the whole matter in dispute, I should have taken time to consider whether it was consistent with the practice of the Court to hear it in private even without the consent of both parties, in order to prevent such entire destruction of the matter in dispute. But from the nature of this case it appears to me impossible to say that the subject of the suit would be destroyed by a public hearing. If the argument could not be conducted without reading the letters it might probably defeat the object of the suit to hear it in public. But it is clear that it may be argued without their being read, possibly even without the Court seeing them.
In Badische Anilin Und Soda Fabrik v Levinstein (1883) 24 Ch D 156, an action for infringement of a patent, the defendant was allowed to give evidence of his secret process in camera on the ground that a public hearing would disclose his trade secrets, that is to say, his manufacturing process. It is well established that courts will sit in camera for the whole or part of proceedings in order to protect trade secrets.
Protecting Confidential Material
Trade secrets are but one form of confidential information. It is not uncommon for courts to sit in camera or make other orders to prevent disclosure of confidential documents or other evidence adduced before it. As Bowen CJ noted in Australian Broadcasting Commission v Parish (1980) 29 ALR 228 at 233:
Thus, where the proceedings concern a secret process and publication of the process would destroy a secret process and publication of the process would destroy the subject-matter of the proceedings and render them nugatory, an order is necessary to prevent prejudice to the administration of justice. Where proceedings are brought to restrain publication of confidential material, similar considerations apply. Disclosure would prejudice the court’s proper exercise of the function it was appointed to discharge, to do justice between the parties. The possible cases where an order may be necessary to prevent prejudice to the administration of justice range fairly widely. The categories of this public interest are not closed and must alter from time to time whether by restriction or extension as social conditions and legislation develop (see D v National Society for Prevention of Cruelty to Children [1978] AC 171, per Lord Hailsham at 230; Science Research Council v Nasse [1978] 3 All ER 1196; [1979] 3 WLR 762, per Lord Fraser at 784 – cases concerning discovery).
The power to make orders to preserve the confidence of the material adduced in court has long existed. In Mellor v Thompson (1886) 31 Ch D 55, the Court of Appeal decided to hear in camera an appeal from an order in the nature of an injunction restraining the defendant from publishing confidential information on the ground that a public hearing would defeat the object of the action. In re Parker (deceased); Bagot’s Executor & Trustee Company Ltd v King [1948] SASR 141 at 143 to 144 Mayo J held that the affairs of a business carried on as part of a deceased estate should not be published in open court. A more recent example is R v Chief Registrar of Friendly Society; ex parte New Cross Building Society [1984] QB 227 where the Court of Appeal sat in camera to hear an appeal against orders in the nature of judicial review. The judge at first instance was satisfied that, if the hearing was in public, it could result in the loss of confidence in the applicant building society. The Court of Appeal recognised the principles of open justice expressed in Scott v Scott but held that the circumstances were exceptional in that it would defeat the purpose of the application if it was heard in public: see Donaldson MR at 235 to 236.
In Chapman v Luminis (No 4) (2001) 123 FCR 62 at 153-154, to prevent the disclosure of what were sensitive documents and evidence in Aboriginal customary law, von Doussa J admitted the evidence under conditions that the evidence be received in a court closed to the general public and to all men (save for the judge). Counsel were required to undertake not to remove from the court any material relating to the evidence taken in closed court.
On a number of occasions during the hearing of Woolworths Ltd v Olson (2004) 184 FLR 121 the proceedings were conducted in closed court and many of the affidavits and statements of witnesses were marked confidential. The material was highly sensitive and confidential because it contained information regarding a project to improve the logistics functions and supply chains of Woolworths. Such information would have been extremely valuable to Woolworths’ competitors. See also David Syme & Co Ltd v General Motors- Holden’s Ltd [1984] 2 NSWLR 294 at 299 to 301 at 307 to 308 and at 310 to 311; re A Former Officer of ASIO [1987] VR 875 at 877; TK v Australian Red Cross Society (1989) 1 WAR 335 at 337-339.
If the subject matter of the proceedings concerns only the private interests of one party or set of parties and the proceedings are not a contest between two parties or otherwise not a matter of public interest, the court might be the more disposed to make an order. That aspect of the question was not argued and I prefer to express no final view on it. I have not proceeded on that footing in this application.
In Russell v Russell at 520, Gibbs J summarised the position in these terms:
The need to maintain secrecy or confidentiality, or the interests of privacy or delicacy, may in some cases be though to render it desirable for a matter, or part of it, to be held in closed court.
Given the remarks in Scott v Scott, that proposition might have to be qualified at least in the case of orders to maintain secrecy or confidentiality so that the order to close the court will be made only if it is necessary to ensure that justice is done and a hearing in open court will destroy the subject matter of the litigation.
Statutory Power to Close the Court
The inherent power of the court to close the court in appropriate cases is supplemented by s 69(1) of the Evidence Act 1929 which expressly invests the court with that power. It is in these terms:
Where a court considers it desirable in the interests of the administration of justice, or in order to prevent hardship or embarrassment to any person, to exercise the powers conferred by this section, it may order specified persons, or all persons except those specified, to absent themselves from the place in which the court is being held during the whole or any part of the proceedings before the court.
The common law principles which have been mentioned inform the circumstances in which an order may appropriately be made in the interests of the administration of justice. For the reasons already given, the expression “in the interests of the administration of justice” means at least that the court may take steps to prevent public disclosure of confidential information where that disclosure would destroy the subject matter of the dispute.
For these reasons, the power to close the court cannot be doubted. It is a power which enables the court to make orders which may be adapted to the particular circumstances of each case.
While they recognise the exceptions to the principle of open justice, courts nevertheless vigilantly uphold that principle. They seek to avoid any creeping erosion of open justice: Scott v Scott at 477-478 per Lord Shaw. To that end, claims for confidentiality will be carefully scrutinised because the power to close court is an exceptional power which might only be exercised where orders closing the court or other orders to preserve the confidentiality of documents are strictly necessary for the attainment of justice: Scott v Scott per Viscount Haldane LC at 438. In appropriate cases, courts will permit inspection by persons not parties to the confidential agreement who can demonstrate a proper interest in inspecting the document: Harris Scarfe Ltd (in liq) v Ernst & Young (No 10) [2006] 204 FLR 165 and, on appeal, (2006) LSJS 317. In short, while the courts will in appropriate cases protect the confidentiality of documents, they will not allow orders preserving the confidentiality of documents to become an instrument of oppression or deny inspection of documents by those who have a legitimate interest in them.
In some cases it will be immediately apparent that an application concerns confidential material. In other circumstances, it might be necessary to hear argument as to why it is contended that the material is confidential. In other instances, reference to confidential material might occur at different times in the course of evidence or argument. Plainly, there will be a variety of circumstances in which reference will be made to confidential material in the course of legal proceedings. In order to ensure that confidential material is not disclosed, it might be necessary to make an interim order closing the court at the outset and later review that order and the extent to which the transcript of the hearing should remain confidential. That is the course I adopted on this hearing.
Statutory Requirement of Open Justice
It is against those principles that the terms of s 46A of the Supreme Court Act 1935 must be considered. Section 46A is in these terms:
Subject to any provision of an Act or any rule to the contrary, the court’s proceedings must be open to the public.
Section 69 of the Evidence Act is clearly one statutory provision which qualifies the operation of s 46A: McLachlan v Australian Stock Exchange Ltd (No 2) at [75]. In addition to s 69 of the Evidence Act, there is at least one other statutory provision as well as rules of court which qualify the operation of s 46A. Section 131 of the Supreme Court Act provides for the circumstances in which members of the public may inspect transcripts of court proceedings and documents received into evidence. Section 131(2)(a) provides:
(2)A member of the public may inspect or obtain a copy of the following material only with the permission of the court:
(a) material that was not taken or received in open court…
The purpose of s 131(2)(a) is to enable a member of the public to apply to inspect or copy material that was not taken or received in open court, that is to say, to inspect or copy that which was taken in a closed court. It is implicit in s 131(2)(a) that the court has in the exercise of its discretion closed the court for the purpose of receiving that evidence or documentary material.

Rule 62.07 of the Supreme Court Rules 1987 applies to this action which was instituted long before the Supreme Court Civil Rules 2006 (“the 2006 Rules”) came into operation. Rule 62.07 recognises the inherent jurisdiction of the court to sit in camera. Rule 62.07(1) provided:
All hearings including interlocutory hearings, which by virtue of any law or any Rules or practice of the Court are authorised to occur in chambers shall be held, subject to any law or specific Rule of the Court to the contrary, in a courtroom or chambers to which the public has access unless the Court otherwise orders. (Emphasis added).
Rule 9 of the 2006 Rules is to similar effect. It is in these terms:
9 (1) All proceedings before the Court are, as a general rule, to be held in a place open to the public.
(2) This general rule is, however, subject to the following exceptions –
(a)     a non-contentious interlocutory proceeding may be heard in private;
(b)     a contentious interlocutory proceeding may, if the Judge or Master who is to hear it thinks fit, be heard in private;
(c)     the Court has a general discretion to direct, if there is good reason to do so, that a proceeding be heard wholly or partly in private or that the public be excluded from the whole or a particular part of a hearing.
Sub-rule (2) expressly recognises that there will be occasions when it is necessary for the court to direct that the proceedings be heard in camera. The rule authorises the court to direct that the whole of the proceedings be heard in camera.
As this application is made in an action which was commenced under the Supreme Court Rules 1987, the 2006 Rules do not apply unless the court gives a direction that they do apply to the extent that the court thinks fit: Rule 8 of the 2006 Rules. I refer to it only because its meaning reflects the meaning of Rule 62.07 of the 1987 Rules.
For completeness, I refer also to Practice Direction No 6 which deals with chamber applications under the 1987 Rules. Paragraph 8 of that Practice Direction is in these terms:
Hearings of proceedings in Chambers will be public hearings and such members of the public who wish to attend may do so unless excluded by order of the Judge or Master. If there are any special considerations of confidentiality the Judge’s Associate or Master’s Secretary should be notified in advance so that appropriate arrangements can be made. Pre-trial conferences will not be open to the public.
The Practice Direction is consistent with the terms of Rules 62.07.
The Corporations Rules 2000 (SA) prescribe the procedure to be adopted on this application. Those rules do not contain any provision relating to the inherent power to close the court. To the extent necessary, the court may give directions in accordance with the Rules of Court pursuant to Rule 1.8 of the Corporations Rules.
It is apparent, therefore, that s 69 of the Evidence Act and rules of court qualify the operation of s 49A of the Supreme Court Act. While s 46A preserves the principle of open justice, it does not displace the more fundamental principle that the chief object of courts of justice is to ensure that justice is done. For the reasons already expressed, the power to close the court will be exercised very sparingly.
Orders to Preserve Confidentiality
In his reasons for referring this application to a judge, the Master noted that, with one exception, the practice of placing documents and exhibits in sealed envelopes at the request of liquidators is not authorised by any rule of court or by any considered judicial decision. The exception is Rule 11.3 of the Corporations Rules which authorises documents in support of an application under s 596A and s 596B of the Corporations Act to be placed in sealed envelopes. As the Master observed, that rule has no operation on this application. With respect the Master has failed to take into account the full extent of the inherent power of the court to control its proceedings. Regard must also be had to the effect of s 69A of the Evidence Act.Should a court order that proceedings be heard in closed court, the order would be frustrated if steps were not taken to preserve the confidentiality of those confidential documents tendered at the hearing. It is for that reason that, as a matter of practice, documents are placed in sealed envelopes which may not be opened except by order of a judge of this court.
Section 69A(2) of Evidence Act
An order placing documents in a sealed envelope is effectively a form of suppression order. Section 69A(1) permits this court to make a suppression order to prevent prejudice to the proper administration of justice. Section 69A(2) of the Evidence Act spells out matters to which the court should have regard when making that suppression order. It is in these terms:
If a court is considering whether to make a suppression order (other than an interim suppression order), the court –
(a) must recognise that a primary objective in the administration of justice is to safeguard the public interest in open justice and the consequential right of the news media to publish information relating to court proceedings; and
(b) may only make a suppression order if satisfied that special circumstances exist giving rise to a sufficiently serious threat of prejudice to the proper administration of justice, or undue hardship, to justify the making of the order in the particular case.
Section 69A(2)(b) does not prevent an order sealing up documents where it has been determined that the public disclosure of those documents would defeat the interests of justice. The purpose of an order sealing up confidential documents is to provide a means of preserving the confidentiality of those documents in a case where the court has already determined that the court should be closed or other measures taken to preserve that confidentiality. It is an instance of the principles of open justice yielding to the more fundamental principle of ensuring that justice is done and that the subject matter of the action is not destroyed. Implicit in that decision is that there are special circumstances which give rise to a sufficiently serious threat of prejudice to the proper administration of justice as to warrant the documents being sealed up. In that way the terms of s 69A(2)(b) are satisfied.
Once an order sealing up confidential documents has been made, s 131(2)(a) ensures that those documents cannot be inspected except by order of a judge of the Supreme Court.
For these reasons, the court has inherent power to close the court and sit in camera for either the whole or part of the hearing of this application. The court also has power to make orders to the extent necessary for the purpose of preserving the confidentiality of confidential documents and the transcript relating to the application.
The Public Interest in the Beneficial Administration of Liquidators
In re HIH Insurances Ltd [2005] NSWSC 731 at [10] to [12], an application by liquidators for approval of a compromise, Barrett J identified two other aspects of the public interest which compete with the public interest of open justice. Exercising the power invested in the Supreme Court of New South Wales by s 80 of the Supreme Court Act 1970 (NSW), he closed the court to hear the application for approval of the compromise. He said:
10In the present case, I see two other public interests as competing with the public interest in the open justice. The first is the public interest in the due and beneficial administration of the estates of insolvent companies under the Corporations Act by liquidators appointed by and answerable to the court, that administration being for the benefit of creditors. The public interest in the due administration of the insolvent estates of the HIH companies is particularly pronounced where there are many thousands of creditors from all walks of life. The liquidators are officers of the court and are entitled to have the court appropriately facilitate such actions as they may properly take in the interests of creditors and in the furtherance of the public interest to which I have just referred.
11The second competing public interest arises from the fact that the agreements in respect of which application is made under s 477(2B) are agreements concerned with the pursuit of litigation. All the actions in contemplation are actions in this court. There is a clear public interest in the due administration of justice in that litigation. The liquidators who propose to pursue it for the benefit of creditors should, as a general matter, have an expectation that they will be able to do so free from distortions of a kind that would not arise if the litigation were pursued by an ordinary litigant in the ordinary way. Unlike ordinary litigants who pursue litigation in the ordinary way, liquidators in the position of the present applications are required to come to the court to seek approval if and when it becomes appropriate for them to enter into contracts not to be performed within the space of three months. Were it not for that requirement and for the supervision of the Court in that respect, the liquidators would, like other litigants, merely go ahead and enter into the agreements to which the confidentiality concerns relate.
12The administration of justice is, in my view, very likely to be prejudiced in two ways by availability to the potential defendants of (and any public airing of) the information concerning the liquidators’ proceedings that will inevitably be divulged by the adducing of evidence and the making of submissions on the hearing of the s 477(2B) applications. There is a likelihood of a real and negative impact upon the due and orderly conduct of the proposed proceedings themselves, in that the defendants in them will have access to information that, in the ordinary course, a plaintiff is entitled to keep confidential in the plaintiff’s own interests. Any such access would produce an undue distorting effect in relation to the due conduct of those proceedings themselves. There is also a likelihood of a real and negative impact upon the due conduct of the several windings up by the court in the interests of the creditors of the respective companies. Although there have been changes in the legislative landscape since the decision of Marks J in Re Timberland Ltd; Commissioner for Corporate Affairs v Harvey [1980] VR 669, I think it is still generally true to say, as his Honour there said, that “[t]he winding up is by the court which for the purpose of the liquidator is”. In saying this, I do not mean to imply that a liquidator in a court ordered winding up enjoys some privileged position, as compared with any other litigant; merely that the fact that a winding up is a winding up by the court means that it in its own right an aspect of the process of the administration of justice.
His Honour was satisfied that in the particular circumstance of the application before him, those two interests outweighed the public interest in open justice. He expressed his conclusion in these terms at [13]:
The special circumstances of the liquidators and the statutory functions they perform, coupled with the need for them to come to court on this occasion to seek leave in a way that an ordinary litigant does not have to seek, sets the case apart in such a way that justice will best be served by an examination of the matters the liquidators are bound to raise with the court in an atmosphere where they can lay them before the court fully and frankly and without any apprehension that the interests they are bound to serve will thereby be prejudiced. Applying the terminology used by Viscount Haldane LC in Scott v Scott, I am of the opinion that the paramount object of securing that justice is done in both the proceedings instituted by the liquidators’ filing of statements of claim and the respective windings up will really be rendered doubtful of attainment if an order under s 80 is not made.
His Honour then proceeded to hear the application in camera.
I respectfully agree with those remarks. It might be said that the second public interest he identified is but another instance of the court sitting in camera to preserve confidential material and thereby to avoid defeating the subject matter of the application. Section 80 of the Supreme Court Act 1970 (NSW) was repealed on 15 August 2005 by s 6(2) of the Civil Procedure Act 2005 (NSW) which by s 71 re-enacted a like provision. In re HIH Insurance Ltd [2007] NSWSC 498 at [3] to [7], Barrett J applied the same reasoning, again on an application by liquidators for approval of a compromise.
A Confidential Arrangement
The liquidator of JN Taylor Holdings Ltd accepts the general principle that courts conduct their proceedings in public and that the court will depart from that principle in exceptional cases only. He contends, however, that if the events leading to this compromise and the nature of the compromise were disclosed, litigation might result in which the compromise will be challenged causing the other party to the compromise to terminate the contract thereby negating an arrangement which is of considerable commercial benefit to the preference shareholders of JN Taylor Holdings Ltd.
I am satisfied that the compromise involves a confidential agreement between a liquidator and another party and of the reasons why the agreement is and must remain confidential. I am satisfied the events leading to the compromise are also confidential. If I were to explain the reasons for these conclusions, there is a real risk of destroying the confidentiality of the agreement to the detriment of this commercial arrangement which provides a substantial benefit to the preference shareholders. In addition, the legal advice relating to the compromise must remain confidential. Putting to one side any question of legal professional privilege, it refers to the confidential agreement and the circumstances leading to it which must also remain confidential if the agreement is to have any force or effect. This is a clear case where disclosure of the agreement and the circumstances leading to it would defeat the agreement itself to the clear prejudice of the preference shareholders.
For all of the above reasons, I confirm the interim order that the liquidator’s application be heard in closed court and will to the extent necessary make orders protecting the confidentiality of the documents filed in support of the application.
Approval of the Compromise – Relevant Principles
The liquidator is charged with the task of administering the winding up of the company efficiently for the purpose of collecting and distributing its assets for the general benefit of its creditors and, if possible, for its contributories: re Walker Hare Pty Ltd (in liq) [1968] VR 447 at 455. When an application is made pursuant to s 477(2A) the court does not approve the compromise. Instead, it grants approval to the liquidator to enter into the compromise. In truth, it is granting the liquidator leave to enter into the compromise. The court should not exercise its powers under s 477(2A) unless satisfied that the compromise is beneficial to its creditors and, in an appropriate case, its contributories. When considering that question, the court will have regard to the overriding purposes for which the liquidator’s powers exist: re HIH Insurance Ltd [2004] NSWSC 5 at [15]. They are to serve the interests of those concerned in the winding up: re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83, and to do whatever needs to be done for the proper realisation of the assets of the company: re GA Listing and Maintenance Pty Ltd (1994) 15 ACSR 308. The court must, therefore, consider whether the compromise is in the interests of those concerned in the winding up: re Spedley Securities Ltd (in liq). When the court is asked to approve entry into a compromise, the court will pay due heed to the commercial judgment of the liquidator: re Chase Corporation (Australia) Equities Pty Ltd (1990) 8 ACLC 1118. That is not to say that it rubber stamps whatever is put forward by the liquidator but, as is made clear in re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 231 to 232, the court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers and, as a general rule, will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator’s conduct: re Spedley Securities Ltd (in liq); see also State Bank of NSW v Turner Corporation Trust (1994) 14 ACSR 480 at 483. The court must exercise the same restraint when the question is whether the liquidator should be authorised to enter into a particular transaction the benefits and burdens of which require assessment on a commercial basis: re Spedley Securities Ltd (in liq) at 86. Where the compromise involves large sums of money, the liquidator should obtain the advice of experienced counsel, that is say, counsel of at least seven years standing: re Chase Corporation at 1119; re Spedley Securities Ltd (in liq) (supra). Observations to like effect have also been made in State Bank of New South Wales v Turner Corporation Ltd at 483 and re Gate Gourmet Australia Pty Ltd(in liq) (2005) 23 ACLC 834 at 836.
Section 477(2B) provides that the liquidator must not enter into an agreement on behalf of the company which will operate for a period in excess of three months unless the liquidator obtains the approval of the court, of the committee of inspection or other resolution of creditors. Section 477(2B) is in these terms:
Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or a charge) if:
(a) without limiting paragraph (b) , the term of the agreement may end; or
(b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;
more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
The purpose of s 477(2B) is to restrict liquidators from entering into long term commitments which may not be conducive to an expeditious and beneficial administration: Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 at 117 where Austin J notes the events leading to the enactment of s 477(2B). The purpose of s 477(2B) is to ensure that the term of the contract does not cut across the general expectation that a winding up will proceed in as expeditious a manner as circumstances will allow. The issues for the court when considering whether to grant approval under s 477(2B) are similar to those which exist when it is considering whether to grant approval under s 477(2A): Corporate Affairs Commission v ASC Timber Pty Ltd at 118.
Leave to Make the Compromise
In this case the compromise involves a substantial sum of money. The liquidator has obtained the advice of senior counsel who has extensive experience of liquidations and receiverships over a period of at least 15 years. That advice confirms that the compromise provides a very substantial benefit to the preference shareholders. The compromise will provide a certainty to preference shareholders which is not currently available and an immediate return to them. This is a liquidation which has already yielded a return of 100 cents in the dollar to creditors. The liquidator has already made two payments to preference shareholders which total a distribution of 40 cents in the dollar. The compromise into which the liquidator now seeks to enter represents another significant financial payment to the preference shareholders. The liquidator already holds funds available for distribution. When the amount of the compromise is added to those funds, a further distribution of about 30 cents in the dollar will be made. If the compromise is approved, the payment may be made before 30 June 2007. This will mean that the total distribution made to the preference shareholders will be of the order of at least 70 cents in the dollar. The commercial benefit to the preference shareholders is manifest.

At the time when the liquidator entered into the agreement, the Committee of Inspection had been reduced to one. It was not possible, therefore, for the Committee to approve the compromise. Mr Catto was the only member of the Committee when the liquidator made the agreement. He is a preference shareholder and has expressed his approval of the agreement. By an order made on 23 March 2007 the membership of the Committee of Inspection has been increased to two. The liquidator does not believe that it is appropriate for the newly appointed member of the Committee to be burdened with the decision whether to approve the compromise and so seeks the approval of the court.
Mr England, who was the liquidator of JN Taylor Holdings before Mr Smith took over that office on 25 May 2004, had entered into a like arrangement in 1999 with the same party. That transaction was not completed. The present transaction provides a higher return to the preference shareholders than the arrangement in 1999 and so is plainly to their advantage. That fact confirms the commercial judgment of Mr Smith in wishing to proceed with this arrangement which is of enhanced benefit to the preference shareholders.
Everything, therefore, points to the conclusion that the court should grant its approval to the liquidator to enter into the compromise.
I have had regard to the fact that the agreement will operate for a period of years. That period of time is necessary if the other party to the agreement is to have any benefit from it. That will not create any burden for the company because neither the company nor the liquidator will incur any cost. In order to maintain the confidential nature of the transaction it is not possible to say anything more that I am entirely satisfied that it is appropriate for the court to grant approval notwithstanding that the transaction could operate for a period of years.
For all of these reasons I grant approval to the liquidator to enter into the compromise.