REASONS FOR JUDGMENT
1 The receivers of South Eastern Secured Investments Ltd (Receivers and Managers Appointed) (SESI) obtained leave to issue, and then issued, a summons to Ms Macmillan to attend an examination before a Registrar regarding the affairs of SESI and to produce books and documents. The order granting leave was made under s 596B of the Corporations Act 2001 (Cth). Ms Macmillan applies to have the summons set aside. Rule 11.5(2) of the Federal Court (Corporations) Rules provides that an application to set aside an examination summons must be made within three days of its service. Her application is out of time, but an extension is not opposed.
2 SESI was part of the Provincial Finance Group (Provic), which carried on lending operations in regional areas of Victoria and southern New South Wales. Prior to its collapse in February 2009, the group raised money from the public on the issue of debentures (in excess of $660 million was raised) and lent money on the security of first mortgages over freehold property. Local firms of solicitors were retained on behalf of group companies in connection with the making of the loans. Often a director of the relevant Provic Group company was a partner in the firm retained.
3 In 2005, SESI lent $18.7 million to Premier Village Developments Pty Ltd (PVD) to enable it to purchase a retirement village at Hoppers Crossing. The loan was intended to be secured by a first mortgage over the retirement village. In the following year, SESI lent a further $1 million to PVD which was also to be secured by the mortgage. This was one of the largest loans SESI advanced.
4 Unbeknown to SESI, s 29 of the Retirement Villages Act 1986 (Vic) created a super-priority charge over the retirement village in respect of all refundable contributions paid by or on behalf of residents. That charge had priority over all other charges and encumbrances.
5 In November 2008, PVD defaulted under the loan. By virtue of the statutory charge in favour of the residents, SESI was not able to recover the full amount of its loan. It may have lost over $12 million.
6 SESI had retained a firm of solicitors, Birch Ross and Barlow (BRB), to act on its behalf in connection with the loan to PVD. BRB also acted for SESI in connection with other loans. There was a close relationship between SESI and BRB; a majority of SESI directors were partners in the firm.
7 The receivers and managers, who were appointed by the debenture holders, have commenced an action against BRB and several of SESI's former directors in the Supreme Court of Victoria. As against BRB, it is alleged that the firm was negligent in performing its retainer. The alleged negligent conduct consists of failing to advise SESI of the existence and effect of the statutory charge. The complaint against the directors is that they breached the duty imposed upon them by s 180 of the Corporations Act: that section requires directors to exercise their powers and discharge their duties with due care and diligence. Damages, interest and costs are sought.
8 Solicitors who carry on practice in Victoria are required to maintain professional indemnity insurance: Legal Profession Act 2004 (Vic), s 3.5.2(2). The insurance must be with the Legal Practice Liability Committee established under Part 6.6: s 3.5.2(4). The terms of the policy are approved by the Legal Service Board: s 3.5.6(1).
9 The policies issued by the Liability Committee to BRB are "claims made" policies. The policies issued for the years 1 July 2008 to 30 June 2009 and 1 July 2009 to 30 June 2010 include cover for claims for advice, representation, recommendation, endorsement or opinion favouring investment by way of a loan. The extent of the cover is $2 million for any one loss.
10 The receivers want to know whether it is worthwhile pursuing the claims against BRB. The insurance arrangements are seen by the receivers as critically important to the commercial viability of the claim. Thus the receivers seek to discover what they can about any directors and officers' liability insurance, any professional indemnity insurance and any claims made under those policies in relation to loss suffered by SESI. They also wish to understand the claims history of BRB and the way past claims by SESI have been treated by the Liability Committee. In addition the receivers want to learn more about an exclusion in the policies that was relied upon by the Liability Committee to deny a similar claim in July 2009. Despite attempts to ascertain this information, including examining a director of SESI, the receivers have been unable to obtain enough information to determine the viability of continuing with the Supreme Court proceeding.
11 In pursuit of this information the receivers seek to examine Ms Macmillan. She is an employee of the Liability Committee. The documents she has been asked to produce at her examination relate to the policies issued by the Liability Committee to BRB during the period 1 July 2003 to 11 February 2009 and claims or notifications of claims made by BRB on those policies.
12 Ms Macmillan moves to have the examination summons discharged principally on two grounds: first that she is prohibited by statute from disclosing the information that is sought, and second, that the proposed examination and documents sought to be produced are not part of the examinable affairs of SESI. If the summons is to stand, Ms Macmillan seeks to have altered the documents she has been asked to produce.
13 As regards the first point, s 6.6.13(1) of the Legal Profession Act provides that a member or employee of the Liability Committee must not disclose any information relating to the affairs of any person acquired in the performance of functions or duties under the Act. It is not in dispute that the information and documents sought from Ms Macmillan fall within that description. What the receivers rely upon is an exemption to the secrecy obligation. Section 6.6.13(2) provides that the secrecy obligation does not prevent a person:
(a) producing a document or giving evidence to a court or tribunal in the course of criminal proceedings, proceedings under [the Legal Profession] Act or proceedings relating to a contract of professional indemnity insurance;
14 At issue in this application is whether (1) what occurs at a s 596B examination amounts to "producing a document or giving evidence to a court or tribunal" and, if it does, (2) is the production of the documents or the giving of evidence in the course of proceedings "relating to" the insurance contracts issued to BRB.
15 The resolution of the first question is partly solved by Cheney v Spooner (1928) 41 CLR 532. An examination summons was issued under s 123 of the Companies Act 1899 (NSW) to a resident of Victoria to attend or be examined before the Master in Equity in the New South Wales Supreme Court, and to produce books and documents. An order was made under the Service and Execution of Process Act 1901-1924 (Cth) for the service of the summons on the resident in Victoria. Section 16 of the Service and Execution of Process Act provided that "when a … summons has been issued by any Court or Judge … in any State … requiring any person to appear and give evidence, or to produce books or documents, in any civil or criminal trial or proceeding, such … summons may upon proof [of certain methods] by leave … be served on such person in any other State". The resident sought to have the summons set aside. He argued that an examination under the Companies Act did not constitute the giving of "evidence" in a "civil proceeding". That argument was unsuccessful. In the course of giving their reasons, Isaacs and Gavan Duffy JJ considered, first, the meaning of the words "any civil or criminal trial or proceeding". They said (at 536-7):
A "proceeding" used broadly as it is used in s 16 of the Federal Service and Execution of Process Act, is merely some method permitted by law for moving a Court or judicial officer to some authorized act, or some act of the Court or judicial officer.
16 Thus they said that an examination summons constituted a proceeding. They went on (at 537) to say: "The required evidence would therefore be given in a civil proceeding within the meaning of s 16 of the Federal Act, constituted by the application, summons and examination".
17 As to the question whether what occurs at an examination is the giving of evidence, Isaacs and Gavan Duffy JJ rejected a submission that the term "evidence" is appropriate only when some issue of fact is raised for judicial or quasi-judicial determination. They said (at 537):
That is too narrow a limitation of the term. "Evidence", says Best (12th ed, p 6) practically repeating Bentham, is "any matter of fact, the effect, tendency, or design of which is, to produce in the mind a persuasion, affirmative or disaffirmative, of the existence of some other matter of fact." In this case, the law places on the liquidator, in a voluntary winding-up, the responsibility of working out the affairs of the company. It affords him the means of obtaining information, that is evidentiary facts, enabling him to come to a conclusion as to ultimate facts. The information obtained as prescribed through the instrumentality of the Court and on oath is properly described as "evidence."
18 To my mind, there is no reason to give the word "proceeding" in s 6.6.13(2)(a) a narrow meaning. In its ordinary signification, a proceeding is an application to a court for its intervention or action. It has its ordinary meaning in s 6.6.13(2)(a).
19 It is worthwhile noting in this connection that a compulsory examination has traditionally been regarded as a proceeding. By way of example I refer to Re Beall; Ex parte Beall [1894] 2 QB 135. That concerned a private examination under the Bankruptcy Act. It was held by the Court of Appeal that the examination was a "proceeding of the court" within the meaning of the Bankruptcy Rules and hence the transcript of the examination was required to be placed on the court file. Likewise in Re Appleton, French & Scrafton, Ltd [1905] 1 Ch 749 Warrington J held that a Companies Act examination was a "proceeding in the Supreme Court" thus enabling the court to make a costs order.
20 I derive little assistance from Griffin v Pantzer (2004) 137 FCR 209. One of the questions in that case was whether the Evidence Act 1995 (Cth) applies to examinations under the Bankruptcy Act 1966 (Cth). The Evidence Act applies to "all proceedings in a federal court or an ACT court": s 4(1). The Full Court accepted that the word "proceeding" can have a wide scope. But the Full Court held (at 258-9) that the proceedings contemplated by the Evidence Act are those in which there are parties and in which there are witnesses. An examination under s 81 of the Bankruptcy Act was not such a proceeding. An examination is not between parties. It does not involve the resolution of a dispute. In my view the reasons that led the Full Court to read down "proceeding" when used in the Evidence Act do not apply to s 6.6.13(2)(a).
21 The second issue (does the proposed examination of Ms Macmillan relate to the examinable affairs of SESI) should also be resolved in favour of the receivers. Section 596B of the Corporations Act permits a summons to be issued to examine a person "about a corporation's examinable affairs". The definition in s 9 of "examinable affairs", as extended by s 53, includes the property of the company, including choses in action: Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301, 305.
22 In Re Interchase Corp Ltd (1996) 68 FCR 481, Kiefel J said (at 485) that information "about" a company's choses in action included information which:
[A]llows some estimation of the value of the chose and, as a result, assists the liquidators to decide whether to prosecute the action. Logically I cannot see why information about whether the judgment resulting has any worth, by reason that it will or will not likely be met by payment, is not also then "about" that property. And whilst it may also be said to be "about" the contract of insurance between insurer and insured, this does not prevent it from having the necessary connection with the company's property and then coming within the scope of an examination under s 596B.
23 In my view, the authority of Re Interchase Corp has not been affected by Meteyard v Love (2005) 65 NSWLR 36. In that case, a company in receivership had a potential claim on its insurer in respect of a fire at a coal mine. On the application of the company's receivers, examination summonses were issued to the insurer, an insurance loss assessor, consultants who had provided reports to the insurer about the incident and various other individuals. The NSW Court of Appeal held that the information sought was about the examinable affairs of the company. Basten JA delivered the leading judgment. In the course of it, he said (at [36]):
The authorities support the proposition that the examinable affairs of a corporation include:
(a) the existence of an insurance policy relating to the assets of the corporation;
(b) the terms and conditions of such a policy;
(c) where a claim has been made, the decision of the insurer with respect to the claim; and
(d) where a claim has not been determined, the potential value of the claim.
24 For these propositions, Basten JA cited Re Allstate Explorations NL; Ryan v QBE Insurance Ltd (2003) 46 ACSR 379 and Re Clutha Ltd (in liq) (2003) 44 ACSR 734. But, of course, the leading case is the decision of the South Australian Full Court in Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) (1993) 61 SASR 557.
25 Later in his reasons, Basten JA made reference to that part of the definition of "examinable affairs" which picked up the affairs of a connected entity of the corporation. In relation to the affairs of the connected entity he said (at [42]):
[T]he internal operations or activities of another person or corporation will not fall within the examinable affairs of the corporation simply because they have the potential to affect the value of the assets of the corporation. In other words, although the "property" of the corporation may constitute part of its examinable affairs, the phrase "information about" such property should not be read so broadly as to include "any information which may affect the value of the property".
26 Mr Collins SC, who appeared for Ms Macmillan, pointed to this passage to show that what the receivers wished to discover (ie whether it is worth pursuing a claim against BRB because they have or do not have insurance to cover any claim) does not constitute part of the examinable affairs of SESI. I think that the cited passage deals with another topic. I think also that the argument cannot hold sway, not only because of the decision in Re Interchase but also because Basten JA accepted (at [47]) that the examination summonses were justified for purposes of "deciding whether to institute proceedings against [the insurer] in relation to a denial of liability under the insurance policy. Information relevant to that decision forms part of the examinable affairs of [the company in receivership]. Such information will, consistently with the authorities, include: (a) information necessary to assess the justification or otherwise of the denial [of liability], and (b) in an appropriate case (of which this is not one) information as to the worth of the potential defendant in such proceedings".
27 Mr Collins sought to distinguish this part of the reasons on the basis that it concerned a claim by the company against its own insurer. I agree that what Basten JA said concerns such a claim. Where I disagree with Mr Collins is with his submission that Basten JA's reasoning does not apply to a case where the company does not have any claim or potential claim against its insurer.
28 It is also necessary to refer to Re GPI Leisure Corp Ltd (in liq) (1994) 12 ACLC 815. The liquidator of GPI Leisure alleged that a firm of solicitors was liable to the company for breach of duty. An examination summons was issued to a partner of the firm. He was also required to produce documents which related to the professional indemnity insurance held by the firm. The solicitor applied to have the summons set aside. McLelland CJ in Eq acceded to the application in part. He said (at 817):
It is one thing to permit the liquidator to use the process of the Court to compel persons alleged to be liable to [GPI Leisure] to answer questions about the existence of insurance policies which may be available to indemnify such persons in respect of any such liability, and to compel the production of such policies and ancillary documents such as renewal certificates. It is quite another, to permit the liquidator to use such process to compel answers to questions, and to compel the production of documents, in order to conduct an investigation into other matters such as, for example, (a) the merits of any dispute between the insured and the insurer as to whether a policy has been avoided for non-disclosure, or whether conditions of indemnity in the policy have been fulfilled (I should stress that these are hypothetical examples); or (b) confidential disclosures by the insured to the insurer made in order to protect the insured's right to indemnity under a policy (which may not be protected by legal professional privilege). (Citations omitted)
29 Mr Collins said that in Re Southland Coal Pty Ltd (recs & mgrs apptd) (in liq) (2006) 58 ACSR 113 Austin J was in error in holding (as he did at [58]) that the observations of McLelland CJ in Eq in GPI Leisure must be regarded as qualified by Meteyard such that it is permissible, depending on the circumstances, to obtain information in order to investigate the merits of a dispute between insurer and insured, as to whether an insurance policy has been avoided or whether the conditions of indemnity in the policy have been fulfilled on the basis that these are matters which are part of the examinable affairs at least of the insured. In my view, the part of McLelland CJ's decision which I have quoted is in conflict with both Meteyard and Re Interchase and should not be followed.
30 Returning to the exemption to the secrecy obligation (s 6.6.13(2)), it only applies to the giving of evidence or the production of a document in proceedings "relating to a contract of professional indemnity insurance". While the satisfaction of this criterion was in issue, I think there can be no doubt that the proposed examination of Ms Macmillan will deal with the single topic of BRB's insurance policies, claims on those policies and the ability to recover on any claims. This is nothing other than a proceeding which relates to the policies.
31 Next, there is an objection that the documents sought to be produced are wider than may be necessary for a proper determination of the issues which motivated the receivers to bring the summons. There are several respects in which the documents that are sought do travel beyond what is strictly necessary. I have discussed these with counsel and the plaintiffs have agreed to amend the schedule of documents required to be produced.
32 I should add here that the information which the plaintiffs seek to adduce orally from Ms Macmillan travels beyond what they are legitimately entitled to ascertain. For example, BRB's claims history seems to be an irrelevant line of inquiry unless it throws some light on a present denial of liability in respect of a SESI-based claim. I am also concerned about the relevance of the Liability Committee's denial of liability in relation to a claim made on BRB by SESI. But I will leave it to the Registrar before whom the examination will be conducted to consider questions of relevance.
33 Save for the amendments that will be made to the documents schedule (which I will deal with on the papers when the parties provide me with a draft), I will otherwise dismiss Ms Macmillan's application and order her to pay one half of the receivers' costs.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.