ACN 004 410 833 Ltd (formerly Arrium Ltd) (in liq) v Walton

Federal Court of Australia|2021-04-01|Before: Stewart J

It is declared that LCM Operations Pty Ltd is permitted to use in proceeding numbered 2020/00262271 in the Supreme Court of New South Wales, information and documents obtained by it pursuant to orders for production and examination summonses issued in this proceeding.
Rabah Enterprises Pty Ltd pay the costs of the applicant's interlocutory application filed on 26 November 2020. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 By interlocutory application, LCM Operations Pty Ltd seeks leave, if leave is required, to be excused from the operation of the implied undertaking found in Harman v Secretary of State for Home Department [1983] 1 AC 208 in relation to certain documents. The purpose is to use documents obtained in the principal proceeding, which is a proceeding for examination about a corporation's examinable affairs, for the purposes of a proceeding on foot in the Supreme Court of New South Wales. If leave is not required, which is LCM's principal submission, it seeks a declaration to that effect. 2 The order is sought because it was asserted in correspondence that LCM and its solicitors are in breach of its Harman undertaking by using the documents obtained in the examination in the Supreme Court proceeding. 3 The interlocutory application cites Rabah Enterprises Pty Ltd as the respondent. Rabah is, however, not actually a party to the principal proceeding. By consent, I made an order that granted leave for Rabah to be heard in the proceeding as an interested person pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth). Its interest is that it is the defendant in the Supreme Court proceeding.

Background 4 On 10 May 2017, Anthony Wayne Elkerton was appointed as liquidator of 316 Group Pty Ltd (the company). The liquidator identified potential claims available to him and the company in the winding up of the company, but he was unable to acquire funding for proposed public examinations. 5 The company, the liquidator and LCM then entered into an assignment deed dated 14 August 2019. The material terms of the assignment deed include the following: (1) The liquidator and the company sold "absolutely" any claim the company or the liquidator had or may have against, amongst others, Rabah to LCM for the "Price". (2) The "Price" comprised the "Initial Sum", being the sum of $10,000, plus "the Share", being 15% of the "Net Proceeds". (3) The "Net Proceeds" means the "Gross Proceeds" minus "Recovery Costs", where the "Gross Proceeds" is the aggregate value recovered by LCM under the claim plus any recovery costs that are reimbursed by any third party to LCM. The "Recovery Costs" are, essentially, the legal costs of pursuing the claim. (4) On the date for completion, which is when the conditions precedent were satisfied, LCM would pay the "Initial Sum" to the liquidator's administration account maintained by the liquidator for the purposes of s 65-5 of Sch 2 (the Insolvency Practice Schedule) of the Corporations Act 2001 (Cth). (5) LCM would have absolute, unfettered control of any means taken in recovery or attempted recovery of the claim. (6) The liquidator had certain obligations of assistance to LCM in pursuing the claim. (7) LCM had obligations to make periodic reports to the liquidator as to material steps taken by it in recovery or attempted recovery of the claim and any recovery costs. 6 Such an assignment is authorised by s 100-5(1) of the Insolvency Practice Schedule which provides that an external administrator, which includes a liquidator, of a company may assign any right to sue that is conferred on the external administrator by the Act. Further, s 100-5(4) provides that if a right is assigned under this section, a reference in the Act to the external administrator in relation to the action is taken to be a reference to the person to whom the right has been assigned. 7 On 12 September 2019, the creditors of the company resolved, pursuant to s 477(2B) of the Act, that the company and the liquidator be authorised to enter into the assignment deed. 8 Also on 12 September 2019, LCM applied to ASIC for authority for it to apply to the court as an "eligible applicant" under ss 596A and 596B of the Act for the issue of examination summonses and related orders for production. The application disclosed that the proposed examinations were to investigate potential claims available in respect of debts due and owing to the company, "most likely from Rabah", and that such debts had been assigned to LCM. 9 On 4 December 2019, ASIC authorised LCM as eligible applicant for the purposes of Div 1 of Pt 5.9 of the Act in relation to the company. 10 On 16 December 2019, LCM, as plaintiff in its capacity as eligible applicant, commenced the principal proceeding for orders for the issue of summonses pursuant to ss 596A and 596B of the Act and orders for production of documents pursuant to ss 596D(2) and 597(9) of the Act. The affidavit relied on in support of the application disclosed the assignment deed and that the purpose of the proposed examinations was to investigate the quantum and prospects of the proposed claim against Rabah. Orders were initially made by Registrar Cho on 7 February 2020 for summonses for examination and orders for production, and further orders were made by Registrar Cho on 17 June 2020. 11 In response to the orders for production, documents were produced to the Court on 4 March 2020, and the Court granted LCM leave to uplift, inspect and copy the documents that had been produced. Further documents were produced on later dates in March 2020 and in April, May, July and August 2020, and on each occasion the documents were either produced directly to LCM or LCM was granted leave to uplift, inspect and copy them. 12 An officer of LCM has deposed that the documents produced in response to the orders for production are relevant to the claim that LCM has against Rabah. That statement has not been challenged. 13 On 9 September 2020, LCM commenced proceedings in the Supreme Court against Rabah, pursuing the claim for a debt owed to the company but assigned to LCM. In support of the Supreme Court proceeding, LCM relies on the documents produced pursuant to the orders for production made by Registrar Cho. The claim is for a debt in the sum of $14.8 million. 14 In the Supreme Court proceeding, Rabah has asserted that the applicant cannot rely on the documents produced pursuant to the orders for production due to the operation of the Harman obligation. I was informed that the Supreme Court proceeding has been put on hold pending the resolution of the present dispute about the use of the documents.

Relevant principles - the Harman undertaking 15 In Hearne v Street [2008] HCA 36; 235 CLR 125 at [96], Hayne, Heydon and Crennan JJ described the "implied undertaking" found in Harman in the following terms: Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence. (Emphasis added.) 16 The obligation is one not to use documents or information for a collateral or ulterior purpose to that for which they were produced. It is an obligation which can only be released by the court. See Hearne v Street at [107]-[108].

Is leave to use the documents required? 17 There is no dispute that documents produced in this proceeding were produced pursuant to the production orders; that is to say, under the compulsory processes of this Court. It is uncontroversial that the Harman obligation therefore applies. The real question is whether leave is required by LCM to use the documents in the Supreme Court proceeding, and, if leave is required, whether it should be granted. 18 In Re Southern Equities Corporation Ltd (in liq); Bond & Caboche v England (1997) 25 ACSR 394, the Full Court of the Supreme Court of South Australia (per Lander J at 437 ll 4-8, Cox and Bleby JJ agreeing) held, first, that an undertaking is imposed upon a liquidator with respect to documents produced to the court in response to an examination summons. In so holding, the Court rejected the proposition that a liquidator is in a special position and exempt from the Harman undertaking. Secondly, the undertaking is not to use the documents for a collateral or ulterior purpose. Thirdly, the use of the documents in the liquidation is not a collateral or ulterior purpose. 19 The Court also held (at 437 ll 10-20) that it follows that a liquidator would be free to use the documents produced in an examination or the evidence obtained in the examination "in getting in the assets in the liquidation" and that a chose in action against a third party is part of the process of getting in the assets in the liquidation. So, in an action brought by the liquidator or by the corporation at the instigation of the liquidator, the liquidator would be entitled to use any documents produced in answer to an examination summons or transcript of an examination without being required to obtain leave of the court or any other party. 20 Citing, amongst other authorities, Southern Equities at 437, Jacobson J in Gothard v Fell [2012] FCA 495; 203 FCR 236 at [62] held that the effect of the authorities is that a liquidator is entitled to use information or documents produced in an examination for the purpose of subsequent proceedings to get in and realise the assets of the company in liquidation without the leave of the court. 21 That expression of principle was adopted by Derrington J in Re Endeavour Securities (Australia) Ltd (in liq) [2020] FCA 1773 at [25]. His Honour went on to say that by parity of reasoning one might readily conclude that the same principle would apply to "eligible applicants" who obtained documents in the course of an examination and intended to use them for the purpose of bringing claims which were the subject of the examination. His Honour cited Black J in Re Provident Capital Ltd (Receivers and Managers Appointed) (in liq) [2015] NSWSC 713 at [12] where his Honour had said, obiter, the following: It is plainly arguable that, where the Plaintiffs were designated as eligible applicants for the purposes of seeking, and subsequently conducting such examinations, then they, like a liquidator who had conducted such an examination, would also be entitled to use information, or documents produced in it for the purposes of bringing in the claims that were the subject of the examinations. On one view, there would be little utility in authorising them to conduct such examinations if they were not entitled to have regard to the information obtained by them for that purpose. It seems to me that there is a strong argument, for those reasons, that the Plaintiffs do not, as they have suggested, require leave to use the documents for the purposes for which they seek to use them, because that use is, in fact, consistent with the production of those documents in the examinations. 22 In both those cases, that is Endeavour Securities (at [27]) and Provident Capital (at [13]), it was not necessary to decide whether an eligible applicant is in the same position as a liquidator because it was held that if leave was required it should in any event be granted. 23 Rabah submits that as an eligible applicant LCM is in a different position to that of a liquidator. It submits that an eligible applicant, unlike a liquidator, has no necessary relationship with the company, owes no duties to the company or to the creditors, and is not subject to the same duties to the court as a liquidator is. On that basis, it submits that, unlike a liquidator, an eligible applicant needs leave of the court to use the documents even if the purpose for which they are sought to be used is the purpose for which they were obtained. 24 Rabah cites no authority for that proposition other than to refer to Endeavour Securities and Provident Capital as not having decided that an eligible applicant is in the same position as a liquidator. 25 I too do not have to decide whether as a general proposition an eligible applicant is in the same position as a liquidator when it comes to the use of documents obtained in examinations, although I too consider that the considerations in favour of such equivalence are substantial. Be that as it may, this case is best decided on its own facts with reference to the Harman obligation. That is to say, as the Harman obligation prevents use of documents or information "for any purpose other than that for which it was given", it is necessary to consider the purpose for which the material was produced in this proceeding and the purpose for which it is intended to be used in the Supreme Court proceeding. Those are the questions that were canvassed in Southern Equities and Gothard v Fell with reference to a general principle whether the use of documents obtained by a liquidator in compulsory examinations and then used by the liquidator in proceedings to bring in the assets of the company requires leave of the court. The answer given was "no". Those cases, and the others cited in argument, do not suggest that the liquidator enjoys any special position in relation to the Harman obligation, with the result that it is not relevant to enquire into whether an eligible applicant also enjoys such a special position. 26 This proceeding was commenced by LCM pursuant to provisions of the Act which empower the court to compel the production of documents and information about the company's examinable affairs. In this proceeding, LCM expressly disclosed the purpose for its commencement of the proceeding as being to investigate the company's potential claims (assigned to the applicant), including an investigation into the debt owed by Rabah to the company. It is uncontroversial that the predominant purpose of the proceeding and hence the examinations and orders for production of documents was to investigate the very claim which LCM now pursues in the Supreme Court proceeding. 27 It follows, in my view, that the purpose for which the documents are sought to be used is the very purpose for which they were obtained under the compulsory process of the Court. On that basis, no leave is required and an appropriate declaration should be made.

Abuse of process or private purpose 28 Rabah submits that the examinations and summonses by which the documents in question were produced were to pursue a private purpose, and in that sense LCM is not in a position analogous to that of a liquidator who uses such documents for purposes associated with the liquidation of the company and for the benefit of creditors. Rabah goes further and submits that it is an abuse of process to use the Pt 5.9 procedure "if the predominant purpose of the applicant seeking the order is not for the purpose of benefiting the corporation, its contributories or its creditors", citing Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; 145 FCR 176 at [143] per Lander J (Ryan and Crennan JJ relevantly agreeing). It submits that the evident predominant purpose of the examinations and summonses was to pursue the private interests of LCM. 29 It seems to me that Rabah's submission suffers from two principal defects. 30 First, the liquidator, and hence the company and its creditors, retains a 15% interest in the claim that LCM is pursuing in the Supreme Court proceeding. On the face value of the claim, that amounts to some $2.2 million. On any view, that is a substantial interest. The continuing interest of the liquidator in recovery is apparent not only from his 15% interest in the proceeds of the claim but also from other terms of the assignment deed such as LCM's obligations to periodically report to the liquidator. In the context of the liquidator not having been in a position to fund the examinations himself or to have acquired other funding, it is quite apparent that the assignment of the claim to LCM was a means of the liquidator seeking to pursue the interests of creditors, which the creditors accepted by authorising the assignment. Clearly the payment of the initial sum of $10,000 is insignificant in the overall scheme of things, as readily accepted by senior counsel for Rabah. The liquidator and the creditors' real interest is in the 15% share of any ultimate proceeds. 31 On that basis, I reject the submission that the documents were obtained for a strictly private purpose, and the submission that the litigation in the Supreme Court is being pursued for a strictly private purpose. There is clearly a mixed purpose, being in part satisfaction of LCM's own interests and in part the interests of the company and its creditors. 32 In Re Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 at 91 the Full Court of this Court per Gummow, Hill and Cooper JJ discussed the proper purpose of examinations. It was said, as an example, that it would be an abuse of process for a creditor to obtain an examination summons to conduct an examination for the purpose of obtaining evidence in proceedings which the creditor proposed to bring against the examinee for defamation. That would be a purpose completely foreign to the power of examination which is ultimately in aid of the company itself and not the personal advantage of the person seeking to conduct the examination. 33 With reference to that discussion in Re Excel, in Evans v Wainter it was held (at [143]) that Re Excel stands for the proposition that it is an abuse of process to use the Pt 5.9 procedure if the predominant purpose of the applicant seeking the order is not for the purpose of benefiting the corporation, its contributories or its creditors. It was then explained (at [144]) as follows: If the party seeking the examination summons is doing so for any number of purposes, which do not include the purpose of benefiting the corporation, then that would amount to an abuse. On the other hand, if the party seeking the examination summons has as one purpose the achievement of a benefit to that party but has also a further purpose which is for the benefit of the corporation then the use of the Part 5.9 procedure will not be an abuse of process. 34 In Evans v Wainter it was also stated (at [246]-[247]) that persons who have the responsibility of external administration of a corporation "are entitled only to seek an order for an examination summons where the purpose of the examination is, as was stated in Re Excel, for the benefit of the corporation, its creditors or its contributories." It was then said (at [248]): So also ASIC is only entitled to authorise a person as an eligible applicant if that person's purpose in seeking an examination summons is for the benefit of the corporation, its contributories or its creditors. 35 In Kimberley Diamonds Ltd v Arnautovic [2017] FCAFC 91; 252 FCR 244 at [101], it was said per Foster, Wigney and Markovic JJ, by way of example, that: if an eligible applicant obtained an examination summons for the purpose of securing a benefit for itself in other litigation, not involving the company, that purpose would be "offensive", such that the summons could be stayed as an abuse: Evans v Wainter at [140], [143] and [252] (proposition 8). Such a summons could not be of any benefit to the company, its members or creditors. 36 In ACN 004 410 833 Ltd (formerly Arrium Ltd) (in liq) v Walton [2020] NSWCA 157; 383 ALR 298 at [140], Bathurst CJ, Bell P and Leeming JA held as follows with reference to Re Excel and Evans v Wainter (at [139]): It follows that there are two unanimous decisions of the Full Court of the Federal Court which state that an examination, the predominant purpose of which is not to benefit the corporation, its creditors or its contributories, is an abuse of process. None of the other cases to which we have referred have stated that Re Excel was incorrectly decided. Furthermore, they can all be reconciled on the basis that even if the examination was brought by an eligible applicant for its own purpose, that will not be foreign to the purpose for which the power was conferred if it can be shown that fulfilment of the purpose could confer a demonstrable benefit on the company or its creditors (and possibly on all of its contributories). 37 Given the mixed interests of LCM, on the one hand, and the interests of the company, the liquidator and the creditors, on the other, in the examination proceeding, I consider that this case falls squarely within the example given in Evans v Wainter at [144] (quoted at [33] above), and within the principles otherwise explained in Re Excel, Evans v Wainter and Kimberley Diamonds. Moreover, there is a "demonstrable benefit" to the company as referred to in Arrium. It has also not been suggested, and it could not be established, that ASIC acted beyond its power as expressed in Evans v Wainter at [248] (quoted at [34] above) in granting LCM eligible applicant status. 38 Secondly, and in any event, as the intended use of the documents is within the purpose for which they were acquired, Rabah's submissions as to abuse of process and the like have no bearing on the decision to be made. Rabah has not sought to review the Registrar's examination and production orders. Those orders exist in fact and have legal effect, as evidenced by the production of documents under them, until set aside. Rabah's submissions with regard to "predominant purpose", abuse of process and ulterior or private purpose would be relevant to a decision whether to grant leave to LCM to use the documents in the event that such leave is required. But if the documents are sought to be used for the very purpose for which they were required, then no such leave is required and the submissions with regard to abuse of process and ulterior purpose go nowhere. 39 However, for the very reasons that I have given in rejecting the submissions that LCM's pursuit of the documents in this proceeding is an abuse of process and that its proposed use of them in the Supreme Court proceeding is a strictly private purpose, I would in any event release LCM from the Harman undertaking for its use of the documents in the Supreme Court proceeding.

Conclusion 40 For those reasons, there should be a declaration that LCM is entitled to use the documents produced in the examination proceeding in the Supreme Court proceeding. 41 Since LCM does not require the leave of the Court to so use the documents, no application for such leave was required. That is the position that LCM took all along. It only brought this interlocutory application under threat of allegations by Rabah of being in breach of its Harman obligations. Rabah's stance which brought about the interlocutory application was wrong. It should therefore pay the costs. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

Corporations Act 2001(Cth)ss 477(2B), 596A, 596B, 596D(2), and

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