AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2006] NSWSC 184 | Case summary

1091/05 IN THE MATTER OF SOUTHLAND COAL PTY LTD (RECEIVERS & MANAGERS APPOINTED)(IN LIQUIDATION) JUDGMENT 1 HIS HONOUR: The receivers and managers of the property and undertaking of Southland Coal Pty Ltd ("the Receivers") are seeking orders for production of documents by QBE Insurance (Australia) Ltd ("QBE", an insurer), Crawford & Co Australia Pty Ltd ("Crawford", an insurance loss adjuster) and McKensey Mining Services Pty Ltd ("McKensey", a mining consultant). The Receivers have issued examination summonses against various executive officers of QBE, Crawford and McKensey, and they seek the orders for production in connection with those examinations. I shall use the phrase "the QBE parties" to refer to QBE, Crawford, McKensey and the individual examinees. 2 By an interlocutory process filed on 9 March 2006, the QBE parties sought an order that the affidavit filed by the Receivers under s 596C of the Corporations Act to support the issue of the examination summonses be made available to them for inspection. I heard the application on that day and decided to reject it, for reasons to be published. Then on 23 March 2006 I heard the application by the Receivers for the issue of orders for production of documents. My decision on the latter application is summarised under the heading "Conclusions". 3 These are my reasons for judgment on both applications. Facts 4 Southland Coal Pty Ltd ("Southland") is a subsidiary in the Gympie Gold group. Southland and Thiess Southland Pty Ltd were the owners of a coal mine (the Southland Colliery) and mining equipment in the Hunter Valley, as joint venturers in the proportions 90% to 10%. Thiess Pty Ltd was the operator of the mine. 5 QBE was the 70% insurer in an Industrial Special Risks Policy issued to Southland and Thiess for the period from July 2003 to July 2004. The remaining 30% of the risk was written by various London-based insurers. The policy provided insurance in respect of material damage and business interruption at the Southland Colliery. Section 1 of the policy related to material damage and Section 2 related to consequential loss. Amongst the "perils exclusions" in the policy, applicable to both sections, was the following: "14. Loss, destruction or damage to property underground, directly or indirectly caused by or arising out of mining conditions known as creep and/or heave." 6 Conditions 6 and 11, applicable to both sections of the policy, are also relevant. Condition 6 stated the insured's obligation to notify a claim and deliver particulars of loss, and to furnish all relevant books and records. Condition 11 obliged the insured to take all reasonable precautions to prevent loss, destruction or damage to the property insured by the policy. 7 On 23 December 2003 there was a "spontaneous combustion incident" at the coalmine. No lives were lost but valuable mining equipment was destroyed, and the economic consequences of the explosion and fire were catastrophic. The Department of Mineral Resources made orders to seal the mine on 29 December 2003. QBE was notified of the closure of the mine on that day. 8 On 30 December 2003 the directors of Gympie Gold appointed voluntary administrators to the companies in the group, including Southland. On the same day, the agents for lenders to the group, under a corporate loan facility, appointed the Receivers as receivers and managers of the group. Southland's principal asset was the proceeds of the insurance policies. The Receivers have subsequently realised or disposed of all the assets of Southland (including its interest in the mine) other than the insurance claim. A substantial sum is still owing to the creditors by whom the Receivers were appointed. Southland and other group companies went into liquidation on about 28 July 2004. On 11 October 2004 an announcement was made to the Australian Stock Exchange that Gympie Gold had sold its mining interests in the Hunter Valley. 9 QBE instructed a firm of solicitors, Wotton & Kearney, on 2 January 2004 to advise with respect to the investigation of the spontaneous combustion incident and indemnity issues that might arise under the policy. That retainer led to a great deal of work for the firm. Adam Chylek, then an associate and subsequently a partner of the firm, said in his affidavit made on 17 February 2005 that some 884 hours of solicitors' time had been spent on the matter to that day. Wotton & Kearney provided their first advice to QBE on 9 January 2004, and subsequently gave many advices, and had almost daily dealings with the consultants. 10 QBE retained Crawford to provide expert advice as loss adjusters. Wotton & Kearney met with them on 4 January 2004. At that meeting they identified a number of "policy issues" that would need to be resolved before they could advise QBE whether an indemnity was available for the anticipated claims. After the meeting, they wrote to Crawford withdrawing QBE's instructions and telling Crawford to take their instructions from the firm. 11 After visits to the mine, Crawford recommended to Wotton & Kearney that an appropriately qualified mining consultant be retained. Wotton & Kearney retained McKensey, by letter of 14 January 2004. His instructions were to assist Crawford to investigate the cause of the spontaneous combustion incident and to provide expert opinion to enable Wotton & Kearney to advise the insurers on indemnity issues under the policy. 12 Mr Chylek has given evidence that in the period up to 17 February 2005, Crawford has spent 1200 hours and McKensey has spent 410 hours on their assignments. At some stage in the investigation process, a document room was established, which was visited by Guy Raynal of Crawford, sometimes with Mr McKensey, on no less than 16 occasions to February 2005. 13 There is a substantial amount of evidence about difficulties encountered by Crawford and McKensey in gaining access to the mine and to mining personnel, and obtaining the documents relevant to the spontaneous combustion event and the policy issues. 14 Crawford first wrote to Southland on 8 January 2004, purportedly on behalf of QBE and its co-insurers, seeking copies of numerous specified documents and records and explaining that their investigations were being conducted on a without prejudice basis with full reservation of the insurers' rights. There was further correspondence seeking additional information, and some tensions developed between representatives of the insurers and the insured. 15 On 29 January 2004 Mr Raynal from Crawford and Mr McKensey travelled to the mine to inspect documents which were to have been made available. They were met by a solicitor from Freehills, acting for the Receivers, who handed them a confidentiality undertaking to be signed before documents were reviewed. That led to a rather lengthy debate, in correspondence, about the terms of the confidentiality undertaking, before an acceptable form was finally settled on about 18 February 2004. 16 On 4 February 2004 Wotton & Kearney wrote to Freehills, putting on record the insurers' dissatisfaction about the level of co-operation given to date to Crawford by Southland, Thiess and Ferrier Hodgson (the Receivers). There was then correspondence about a proposed meeting between the lawyers and their clients, which apparently never took place. 17 Southland and Thiess made claims under the policy, progressively by interim claims. Southland first notified the insurers on 24 December 2003. It made its first interim claim submission on 20 February 2004. By the time of its second interim claim made on 31 May 2004, Southland's claim on a "constructive total loss" basis was for over $35 million, and its claim under the "recovery and repair option" was nearly $68 million. Its revised material damage claim lodged on 13 April 2005 was for over $42 million. According to the evidence of Brendon Hammond, a solicitor with Wotton & Kearney, Southland's claim seeks recovery under section 1 of the policy, but not under section 2 other than for claims preparation costs. Thiess and Thiess Southland have made a number of claims submissions for consequential loss and business interruption under section 2 of the policy, the most recent being a report prepared by MSM Loss Management dated 13 April 2005. 18 The solicitors for Thiess complained, as early as March 2004, that too much time was being taken for the insurers to communicate their decision on the indemnity claim to the insureds. Nevertheless there was a great deal of correspondence by the solicitors about information issues, together with several meetings, during the remaining months of 2004. Additionally Crawford and McKensey interviewed various mine personnel in February and March 2004, and then in June 2004. 19 At a meeting on 25 March 2004, and in correspondence, Wotton & Kearney said the insurers were considering questions about · whether the property had in fact suffered loss or damage so as to trigger the insuring clause in the policy, · the obligation to take reasonable precautions (condition 11), and · whether there had been any relevant non-disclosure (particularly as to whether a risk report described as the IMIU report should have been provided to QBE). 20 The evidence indicates that Crawford and McKensey obtained access to the IMIU report, dated June 2003, early in March 2004. IMIU is International Mining Industry Underwriters Ltd. After reviewing the report Wotton & Kearney advised the insurers of various matters relevant to potential non-disclosure and misrepresentations. 21 From March to the end of 2004 there was a substantial quantity of correspondence between the solicitors, canvassing many issues. In his affidavit made on 17 February 2005, Mr Chylek usefully summarised the primary issues as follows: (a) non-disclosure and/or misrepresentation, and the insurers' demands for documents; (b) whether documents requested by the insurers were relevant; (c) the delay of the insurers' decision on indemnity; (d) the insurers' access to current and former mine personnel (including independent consultants); (e) whether claimants under the policy had co-operated with the insurers as required by condition 6; (f) the "reasonable precautions" issues raised by condition 11; (g) the "creep and/or heave" issue raised by perils exclusion paragraph 14; and (h) the prospects of mediation. 22 The introduction of the "creep and/or heave" issue should be noted more fully. In a letter dated 23 September 2004, Wotton & Kearney said that as the investigation had progressed, the issues which the insurers' consultants had addressed had become more refined. In a letter dated 28 October 2004, they indicated that "recent inquiries" has suggested that the failure of a number of seals, resulting in the spontaneous combustion outbreak, was caused by "creep and/or heave", and that the insurers had accordingly instructed the firm to make appropriate inquiries. It appears, from Mr Chylek's affidavit of 17 February 2005, that the "recent inquiries" to which the letter may have referred related to work done by Mr Raynal, Mr McKensey, representatives of a company called Wilson Mining Services Pty Ltd, and Professor Russell Frith, a rock mechanics engineer, about which Wotton & Kearney were asked to advise on 11 October 2004. 23 On 25 February 2005 Wotton & Kearney wrote what has come to be called "the decision letter", to the lawyers for Southland, Thiess and the Receivers. The letter stated that QBE contended the "creep/heave" exclusion applied to the spontaneous combustion incident. While the letter said that QBE did not propose to rely on s 28(3) of the Insurance Contracts Act in respect of non-disclosure of a certain report, it reserved its rights as to whether any party entitled to make a claim under the policy had failed to comply with condition 11 (the "reasonable precautions" condition). The applications for examinations and for production of documents 24 In their capacity as receivers and managers and "eligible applicants", the respondents arranged for examination summonses under s 596B to be issued to various individuals associated with QBE, Crawford & Co and McKensey Mining. To do so it was necessary for the Receivers, under s 596C, to file an affidavit supporting the application for the issue of the examination summonses, and they did so. They also arranged for orders for production to be issued under Part 36 rule 12 of the Supreme Court Rules, requiring QBE, Crawford & Co and McKensey Mining to produce specified documents. The individuals and corporations to whom the examination summonses and orders for production were directed ("the QBE Parties") are the applicants before me. 25 According to the evidence, the Receivers wish to use the examinations to assist them to decide whether or not proceedings should be instituted against QBE in respect of the claims made under the policy. The documents were thought to be required for proper conduct of the examinations. 26 The summonses and orders for production were issued by a Deputy Registrar on 18 January 2005, in response to the Receivers' ex parte application. There were summonses to examine Alan Meteyard and Laurence Holland of QBE, Andrew Bart and Guy Raynal of Crawford, and Bruce McKensey of McKensey. Mr Meteyard is QBE's General Manager, Corporate Division, and is responsible for underwriting and claims in that division. Mr Holland is a Technical Claims Officer, Property in the Sydney office of QBE and is responsible for the day-to-day handling of, among other things, the claim under the policy. Mr Bart is Chief Executive Officer of Crawford and is a qualified loss adjuster and accountant. Mr Raynal is a loss adjuster employed by Crawford and is a qualified mechanical engineer. Mr McKensey is a mining consultant who conducts his practice through his company, McKensey. 27 The orders for production, supported by the definitions of certain terms, required production of the following: "All documents brought into existence during the period 23 December 2003 to date relating to, referring to or concerning: (a) any consideration of the Claims and whether the Policy responds; (b) any investigation into the Claims; (c) any preliminary or final decision on the granting of indemnity by QBE to Southland Coal and/or Thiess Southland in relation to the Claims; (d) any consideration of defences or possible defences of QBE (or the underwriters under the Policy) to the Claims or of grounds or possible grounds for declining to grant indemnity in relation to the Claims, including any defence or ground based on any alleged non-disclosure by Southland Coal and/or Thiess Southland; (e) any communications between QBE and/or Crawfords with any other person or persons, including any underwriters under the Policy, in relation to any of the matters identified in (a) to (d) above; (f) the engagement of, investigations by and reporting of Crawfords in relation to the Events, including any interim or final reports by Crawfords in relation to the Events; and/or (g) any interim or final reports of any loss assessor or expert in relation to the Claims made by Southland Coal and/or Thiess Southland, including any reports of McKensey." 28 By interlocutory process filed on 10 February 2005, the QBE Parties made an application to the court to set aside the summonses and orders. The application came before Young CJ in Eq on 21 February 2005, at a time when orders for production were still governed by the Supreme Court Rules. His Honour published his reasons for judgment, dismissing the application, on 31 March 2005 (Re Southland Coal Pty Ltd [2005] NSWSC 259). 29 The "decision letter" of 25 February 2005, to which I have referred, was written after the hearing before Young CJ in Eq but before his Honour delivered judgment. He was informed of that letter and referred to it in his reasons for judgment (at [43]). 30 The QBE Parties appealed from Young CJ in Eq's judgment. The Court of Appeal, which published its reasons for judgment on 13 December 2005 (Meteyard v Love [2005] NSWCA 444), dismissed the appeal so far as it related to the examination summonses, but allowed it with respect to the orders for production, which were accordingly set aside. 31 The Receivers have subsequently made a new application for orders for production. That is the application before me now. The application raises difficult issues about the effect of the Court of Appeal's judgment. It is necessary to give close consideration to the judgment in light of the statutory provisions and rules, and also Young CJ in Eq's judgment at first instance. Statutory provisions and rules 32 The examination summonses in the present case were issued under s 596B of the Corporations Act. Section 596B(1), which is in Part 5.9 Division 1, provides: "The Court may summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (b) the court is satisfied that the person: (i) has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or (ii) may be able to give information about examinable affairs of the corporation." "Eligible applicant" and "examinable affairs" are defined expressions. 33 The definition of "eligible applicant" in s 9 includes a person authorised in writing by ASIC to make an application under Part 5.9 Division I. It is not in dispute that the Receivers are eligible applicants in this category. However, there is an important issue as to whether the proposed examinations are authorised by s 596B(1). In the proceedings before Young CJ in Eq and the Court of Appeal, the Receivers contended, successfully, that the examination summonses fall within s 596B(1)(b)(ii). They did not rely on s 596B(1)(b)(i). 34 "Examinable affairs" are defined in s 9 to mean, in relation to a corporation: "(a) the promotion, formation, management, administration or winding up of the corporation; or (b) any other affairs of the corporation (including anything that is included in the corporation's affairs because of section 53); or (c) the business or affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation's examinable affairs because of paragraph (a) or (b)." 35 "Affairs" is defined in s 53. It is a long definition, of which the following part may be material to this case: "(a) the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owned jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; and … (c) the internal management and proceedings of the body; …". 36 A "connected entity" is defined in s 9 to mean a body corporate that is, or has been, related to the corporation, or an entity that is, or has been, connected with the corporation as defined by s 64B. The concept of a body corporate related to a corporation (or another body corporate) is explained in ss 46-50, according to which a holding company or subsidiary or co-subsidiary of the corporation is related to it. Section 64B gives lists of the characteristics of bodies corporate, natural persons, partnerships and trusts that are deemed to be connected with a corporation. The lists are expressed by reference to matters of control and commercial relationships. 37 Section 596D(2) states that a summons under s 596B may require the person to whom it is directed to produce specified books at the examination, if they are in the person's possession and relate to the corporation or any of its examinable affairs. But in the present case, reliance has been placed on the somewhat wider provisions of procedural law, rather than on s 596D. 38 Part 36 rule 12 of the Supreme Court Rules authorised the court to make orders for (a) the attendance of any person for the purpose of being examined; (b) the attendance of any person and production by him of any document or thing specified or described in the order; or (c) production by any corporation of any document or thing specified or described in the order. It authorised orders requiring production to any person authorised to take evidence, on any trial hearing or any other occasion. It was available in the context of examinations by liquidators and others under Part 5.9 of the Corporations Act, and was widely used. It enabled the Supreme Court to make an order for production against a person other than the examinee, including a corporate person: see generally, Re BPTC Ltd (in liq) (1993) 10 ACSR 756. In that case Bryson J held that the production of documents was ancillary to the process of examination (see also Re BPTC Ltd (in liq) (No 2) (1992) 8 ACSR 533). He said that the legal limits of the power to order production could be seen by asking whether a person acting judicially could reasonably be of the view that production of the document described in the order was required for the purpose of examining a person within the bounds set by s 597 and the internal limitation in the examination orders. Consequently the scope of the power to order production of documents depends crucially on the scope of the power to make an examination order. 39 Section 68 of the Civil Procedure Act 2005 (NSW), which commenced on 1 June 2005, states: "Subject to rules of court, the court may, by subpoena or otherwise, order any person to do either or both of the following: (a) to attend court to be examined as a witness, (b) to produce any document or thing to the court." 40 This provision came into effect on 10 August 2005 and replaced Part 36 rule 12 of the Supreme Court Rules. It is wider in application, because it is a statutory provision rather than a rule and its application is not confined to the Supreme Court of New South Wales. However, like Part 36 rule 12, it is available to be used to require production of documents in connection with an examination under Part 5.9 of the Corporations Act; it allows an order for production to be made against a person whether or not the person has been ordered to attend court to be examined; and it is available to be used to require production by a corporation. Plainly, when used in connection with an examination, the production of documents is ancillary to the examination process and the power to order production is subject to the same legal limits as Bryson J identified in the former Part 36 rule 12. 41 Part 36 rule 13(2) of the Supreme Court Rules dealt, inter alia, with whether privilege could be claimed so as to prevent the inspection of documents produced under pre-trial orders for production. Part 3.10 of the Evidence Act 1995 (NSW) is about privilege (including client legal privilege) as an objection to the adducing of evidence. It does not apply to pre-trial production and inspection. But under subrule 13(2), the court was not to compel production of a document, over objection, if evidence of the document could not be adduced because of client legal privilege, unless the court directed that the production of the document was not prevented by the subrule. 42 Part 36 rule 13 was replaced by rule 1.9 of the Uniform Civil Procedure Rules 2005, as from 10 August 2005. Rule 1.9 is generally though not completely to the same effect, although the language is different. The new rule provides that a person may object to producing a document on the ground that the document is a privileged document (rule 1.9(3)), and then says: "(4) A person objecting under subrule (3) may not be compelled to produce the document … unless and until the objection is overruled." 43 Subrule (4) contemplates that the court has the power to overrule an objection to production made on the ground of privilege (including client legal privilege). By implication, it confirms that the court has a discretion to require production of the document, if it is found not to be privileged. 44 Subrule (5) makes provision for a ruling to be made where an objection is raised on the ground that a document is a privileged document. There is now an express provision that the court may compel the person objecting to produce the document for the purpose of making a ruling on the objection. The judgment of Young CJ in Eq 45 Although the judgment raises other important matters, there were three main issues addressed by his Honour: first , whether the internal affairs of an insurance company and of the expert companies it hires for the purpose of investigating a claim are part of the "examinable affairs" of the corporation to whom the insurance company has issued an insurance policy (judgment, [19]); secondly , whether the orders for examination and for production should be vacated on grounds of oppression or abuse of process; thirdly , whether orders for production should be refused because of the extent to which the documents would be privileged. 46 As to the first matter, his Honour identified two cases on the point, which he regarded as conflicting. The first was Re GPI Leisure Corporation Ltd (1994) 12 ACLC 815, a decision of McLelland CJ in Eq. The other was Re Interchase Corporation Ltd (1996) 21 ACSR 375, a decision of Keifel J in the Federal Court of Australia, which followed Grosvenor Hill v Barber (1994) 12 ACSR 646. 47 In the GPI Leisure case the liquidators of a company (GPIL) alleged that a firm of solicitors had breached their duty to the company. They sought to examine a partner of the firm under s 596B and to require production of documents relating to the firm's professional indemnity insurance. McLelland CJ in Eq held that an order for production of the insurance documents went beyond the examinable affairs of the company. 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 GPIL 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. … [But it is quite another matter] 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 the 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 - cf Bulk Materials (Coal Handling) Services Pty Ltd v Coal and Allied Operations (1988) 13 NSWLR 689)." 48 In the Interchase case, a liquidator had commenced an action for damages, in a very large amount, against the valuers of a shopping centre, alleging that the company had relied on their valuation in outlaying moneys for the centre. It was ascertained that the defendants held, or might be able to have resort to, a policy of professional indemnity insurance, and claims for indemnity were notified to the insurers. The primary insurer advised that it reserved its position - apparently on grounds relating to non-disclosure, late notification, and that the conduct complained of was more serious than negligence - although one of the insurers maintained that the terms of the reservation of position were confidential. The liquidator sought to examine officers of the insurers for the purpose of determining whether the insurers would indemnify the defendant in the event that the liquidator's action was successful. The examinees failed to have the examination summonses discharged. Keifel J held, without referring to the GPI Leisure case, that an examination to discover the existence or validity of the defendant's insurance policy, so as to determine whether the defendant could meet a judgment against it, was an examination "about" the corporation's property and therefore permissible under s 596B. 49 Young CJ in Eq found that both of the cases were distinguishable (at [30], [34], [35], [50 and [51]) because in those cases, the liquidators were seeking to examine officers of the defendants' insurers (that is, insurers standing behind third party defendants), rather than officers of its own insurer (prospectively, a direct defendant). Considering the matter upon "first principles" (at [52]), his Honour concluded (at [54]) that there was no abuse of process or oppression warranting the setting aside of the summonses - a conclusion implying that, in his Honour's view, the proposed subjects of examination and the orders for production were within the "examinable affairs" of Southland. 50 As to the second matter, the QBE parties contended that the proposed examination would be an abuse of process because: · they would be compelled to give evidence of possible defences to an action by Southland under the insurance policies; · the examinations would be a "dry run" of the cross-examination of QBE's witnesses in any such action; and · the examinations could be a "back door" method of obtaining pre-trial discovery (citing Hamilton v Oades (1989) 166 CLR 486, at 489 per Mason CJ). 51 His Honour said (at [39]) that an examination that would disclose defences or amount to de facto discovery may be restrained as an abuse of process, but it did not follow that the examination would be required to be restrained if there were a chance that this would occur. He rejected the submission of the QBE parties that the Receivers' only purpose in seeking an examination under s 596B was to achieve these outcomes (at [40]). He concluded, for these reasons, that there was no abuse of process or oppression warranting the setting aside of the examination summonses or the orders for production (at [54]). 52 As to the third matter, his Honour considered whether the subject matter of the examinations and the documents to which the orders for production related were generally protected by legal advice or litigation privilege (at [56], [78]). This was apparently on the basis that if either or both of the privileges were found to be generally applicable, it would be oppressive or an abuse of process to allow the examinations and the production of documents to proceed at all. 53 As to legal advice privilege, he found that the relevant documents were prepared by Crawford and McKensey on instructions from QBE's lawyers rather than QBE itself, for transmission to the solicitors rather than their client (at [68]); that the lawyers merely obtained general instructions to do what was in their view required to protect the insurer's interest; and they retained a loss adjuster and a mining expert on their own initiative based on previous experience with respect to such matters (at [75]). He held that in such a case, the documents produced in response to the lawyers' directions fall outside legal advice privilege (at [77]). This was on the ground that, if an expert prepares a report on the instructions of an insurer for the purpose of informing the insurer generally in the course of its investigation of an insurance claim, privilege will not be available (Young CJ in Eq at [70]). 54 As to litigation privilege, as there was no actual litigation current between Southland and QBE, the question was whether litigation was in reasonable contemplation at the time when the relevant documents were created, in about January 2004 (Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332). His Honour held (at [83]) that, although the point may eventually have been reached when litigation became a real prospect, that was not as early as January 2004. 55 Though concluding that there was no basis for holding that the examinations generally and the documents ordered to be produced were all protected by legal advice or litigation privilege, his Honour recognised that individual documents or parts of documents might be protected by privilege, and so the appropriate course was for rulings to be made question by question, document by document (at [78], [87]). He rejected a submission that the need to deal with privilege claims in this fashion, leading inevitably to a long, drawn out and expensive process, was oppressive for that reason (at [91], citing Re Allstate Explorations NL (2003) 46 ACSR 379). The decision of the Court of Appeal 56 In deciding to set aside the orders for production, the Court of Appeal held that: (a) the examinable affairs of Southland Coal include, as part of the management and administration of the company, information necessary to assess whether to institute proceedings against QBE in respect of its denial of liability under the insurance policy (at [47]-[48] per Basten JA); (b) this includes information about QBE's decision, and the grounds of justification for it, and the factual content of the information on which it was based (such as information identifying whether, as a matter of fact, the exclusion for "creep and/or heave" mining conditions applied), but not information concerning the internal assessment of the claim by QBE and its advisers (at [40]-[41], [43], [47]-[48] per Basten JA, with whom Beazley JA agreed; compare Santow JA at [10]), or information within the knowledge of the eligible applicant who conducts the examination (at [39(c)] per Basten JA, with whom Beazley JA agreed; compare Santow JA at [11]); (c) communications containing the opinions of QBE's solicitors and its officers about the consequences of the facts, although they are information about the affairs of Southland Coal, may be protected by client legal privilege (at [52-[53], [68] per Basten JA); (d) although, contrary to the findings of Young CJ in Eq, the expert consultants who prepared reports for QBE were appointed as agents of QBE, their reports are immune from production by virtue of the "legal advice privilege" provisions of s 118 of the Evidence Act, if it is established that, in each case, the report was prepared for the dominant purpose of QBE's lawyers providing legal advice to QBE (at [127]-[128] per Basten JA); (e) the examination provisions of Part 5.9 of the Corporations Act do not exclude the immunity from disclosure provided by client legal privilege (at [68] per Basten JA]); (f) orders for production made under Part 36 rule 12 of the Supreme Court Rules are subject to the client legal privilege provisions of the Evidence Act (NSW), by virtue of Part 36 rule 13, which precludes the court from compelling production, even to itself, of a document that is subject to client legal privilege (at [76]-[78], [132] per Basten JA); (g) the court should not make an order for production that extends to documents that are subject to client legal privilege, and where it may be anticipated that questions of client legal privilege will arise, the court should either not make an ex parte order for production or include in the order an express exception for documents subject to privilege (at [132] per Basten JA); (h) in the present case, the orders for production should be set aside because it had been established that a significant proportion of the documents identified by the orders were likely to be protected by client legal privilege (at [133] per Basten JA). 57 As to the examination summonses, the Court of Appeal held that: (a) the examination power must not be used for an improper purpose constituting an abuse of the process of the court, such as to inflict financial or other collateral harm (including costs) or to cause undue inconvenience or embarrassment to the examinee (at [44]-[45] per Basten JA); (b) further, the examination power must not be used for a purpose foreign to the statutory purpose for which the power is conferred, even if that use will advance of the legitimate interests of the company - thus, it may not be used to determine the strength or weakness of the company's case or its opponent's case in litigation, or as a dress rehearsal for cross-examination, or to destroy the credibility of an examinee who is likely to be a witness in the substantive proceeding, or more generally for the predominant purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures (at [45] per Basten JA); (c) an examination cannot be conducted in a manner that is vexatious, oppressive or abusive (at [45] per Basten JA); (d) oppression had not been established on the facts, as the proposed examinees may have had some information about the affairs of the company not already known to the Receivers or not protected by client legal privilege (at [143] per Basten JA). 58 Their Honours did not refer to be GPI Leisure case. Basten JA cited the Interchase case, without disapproval. In my opinion, the Court of Appeal's decision with respect to the examination summonses is inconsistent in part with McLelland J's observations in GPI Leisure, quoted above, which must now be regarded as qualified by the Court of Appeal's judgment. It may be permissible, depending on the circumstances, for a liquidator or other eligible applicant to compel answers to questions and to compel the production of documents in order to investigate the merits of a dispute between insurer and insured as to whether an insurance policy has been avoided for non-disclosure or whether the conditions of indemnity in the policy had been fulfilled. This is because these matters are part of the examinable affairs of the insured, upon which a person may be examined and in respect of which the production of documents may be required (Meteyard at [47]-[48] per Basten JA). The new application for orders for production 59 The examination summonses have survived the challenge by the QBE parties. The Receivers have made a fresh application for the issue of orders for production, this time on an inter partes basis. The application, when made, was to issue orders for production against each of the five examinees, and also against QBE, Crawford and McKensey. However, prior to the hearing the Receivers informed the court that they would confine the application to orders for production against Mr Meteyard, Mr Holland and QBE, proposing that the interlocutory process against the balance of the proposed recipients (Mr McKenzie, Mr Bart, Mr Raynal, McKenzie and Crawford) be stood over generally against them with liberty to restore. The new application is made under s 68 of the Civil Procedure Act 2005 (NSW), which has replaced Part 36 rule 12 of the Supreme Court Rules. 60 In their submissions, the Receivers informed the court that they are seeking the issue of new orders for production on the ground that the orders are required for the purpose of conducting the forthcoming examinations, for the following reasons: (1) the Court of Appeal has indicated certain legitimate areas of examination, identified in the affidavit of Scott Atkins (a solicitor acting for the Receivers) sworn on 1 March 2006, para 14; (2) the purpose of the examinations and the relevance of the proposed orders to those examinations are expressly addressed in Mr Atkins' evidence (paras 14 and 15 of his affidavit of 1 March 2006, and his affidavit of 20 March 2006); and (3) the proposed orders clearly relate to the examinable affairs of Southland and are clearly required for the examination, and the Receivers do not propose to go outside those areas and have fashioned the proposed orders accordingly. 61 The text of the proposed orders for production underwent several revisions, first as an exhibit to the Mr Atkins' affidavits of 1 and 20 March 2006, and then through two further the versions handed up during argument. The categories of documents required for production are described in the schedule to the draft order, comprising eight paragraphs. I attach as a schedule to these reasons for judgment ("the Schedule") the text of what I believe to be the final version of the schedule to the order. 62 Generally speaking, the schedule seeks to identify documents relating to the decisions reflected in the "decision letter", the reasons for those decisions, the considerations taken it into account by QBE in making them, and the inquiries relied upon by QBE for that purpose. But the drafter has had to accommodate the reasoning of the Court of Appeal. 63 As to point (1) above, in his affidavit made on 1 March 2006, para 14, Mr Atkins asserted that the Court of Appeal identified the following matters relating to the policy and the claims as being part of the "examinable affairs" of Southland: (a) matters concerning the insurers' actual decision with respect to the insurance claim, and also matters preparatory to the making of that decision, such as matters going to a future intention of officers of the insurer with regard to defending a claim (per Santow JA at [10]); (b) the existence of an insurance policy relating to the assets of the corporation, the terms and conditions of such a policy; and where a claim has been made, the decision of the insurer with respect to the claim; and where a claim has not been determined, the potential value of the claim (per Basten JA at [36]); (c) information necessary to assess the justification or otherwise of the denial of the claim (per Basten JA at [47]); (d) matters that would assist the Receivers in making a decision whether to pursue the claims, including any material obtained by QBE, such as material obtained through the inquiries undertaken by the loss assessors or the mining consultants, which would assist in identifying whether as a matter of fact the creep and heave exclusion operated (per Basten JA at [48]); (e) information about the stage reached in "pending further investigations" in relation to potential non-disclosures or misrepresentation of material facts prior to the inception of the policy (in relation to which QBE reserved its rights) (per Basten JA at [49]); (f) whether there was a failure to take reasonable precautions, including information contained in reports for QBE prepared by its mining consultants (per Basten JA at [49]); and (g) information in relation to the state of the land, the mine and the mining operations, including information in reports for QBE prepared by its mining consultants (per Basten JA at [51]). 64 According to Mr Atkins, the draft order for production has been extensively revised to accommodate concerns expressed by senior counsel for QBE, to the effect that the proposed categories would capture too many documents, and documents said to be privileged by virtue of the "intertwining" of documents. 65 As to point (2) above, Mr Atkins has given specific evidence about the Receivers' intentions. In his affidavit of 1 March 2006, after presenting his summary analysis of the Court of Appeal 's judgment and noting that Southland has not commenced proceedings against QBE or the London insurers in relation to the claims, he said (at para 15): "I am informed by Mr Love, and believe, that the Receivers wish to use the forthcoming examinations to assist them in determining whether or not proceedings should be instituted against QBE in respect of the Claims by investigating the examinable affairs of Southland Coal, as identified in the Court of Appeal's judgment and set out [above]. I am further informed by Mr Love, and believe, that he considers that the documents to be sought in the proposed Orders for Production from each of the Proposed Recipients are required in order properly to conduct the examinations." 66 In his affidavit of 20 March 2006 he said (at para 3) that the documents are required not merely for the proper conduct of the examinations, but also, upon conclusion of the examinations and a review of the documents, deciding whether to institute proceedings against QBE in respect of the insurance claims. He continued (at para 5): "I am informed by Mr Love and by his partner Mr Mark Taylor, and believe, that Mr Love and also Mr Taylor consider that the documents to be sought in the proposed Order for Production are required for the purposes of: (a) properly conducting the examinations; and (b) upon the conclusion of the examinations and a review of the documents, deciding whether to institute proceedings against QBE." 67 In presenting specific reasons for seeking production of the categories of documents identified in an earlier draft of the Schedule, Mr Atkins said (at paras 11(c)(iii), 12(c)(iii) and 15(c)(iii)) that certain documents would be relevant to the Receivers considering, when they came to decide whether to institute proceedings, whether QBE had acted with the utmost good faith in assessing the Southland claims and declining indemnity. He particularly mentioned the lateness with which the "creep and heave" issue was raised. The obligation of an insurer, arising under s 13 of the Insurance Contracts Act 1984 (Cth), to act with utmost good faith in assessing claims was comprehensively explained by the Full Federal Court (Emmett J, with whom Moore J agreed, Gyles J dissenting) in AMP Financial Planning Pty Ltd v CGU Insurance Ltd (2005) 55 ACSR 305. The Receivers' purpose 68 In my opinion there is no proper foundation for doubting the evidence of Mr Atkins as to the Receivers' purpose, as set out above. The Receivers' purpose, according to his evidence, namely the purpose of conducting examinations with respect to Southland's examinable affairs to assist the Receivers to determine whether or not proceedings should be instituted against QBE in respect of the insurance claims, is a proper and permissible purpose relating to Southland 's examinable affairs, according the Court of Appeal's decision in Meteyard. It is not, in its terms, a purpose that would extend outside Southland's examinable affairs; specifically, it would not necessarily amount to a purpose of using the examination as a dress rehearsal for cross-examination or to destroy the credibility of examinees as witnesses (at [44] per Basten JA), or to inflict financial or other collateral harm or otherwise to be vexatious, oppressive or abusive (at [45] per Basten JA), and would not in its terms be oppressive by requiring the production of documents that the Receivers already have (at [39(c) per Basten JA; compare Santow JA at [11]). 69 There is some similarity between the evidence in this case and the evidence in Pockett v Dean-Willcocks [2004] NSWCA 192. In that case, the primary judge found that administrators, who wished to conduct an examination in order to assess the strength of a cause of action, were acting for a proper purpose even though they were supported by a litigation funder. On appeal it was submitted that there was no material before the judge showing what information the administrators lacked and what information they needed to assess the merits of the cause of action that was in contemplation. The claimants urged the Court of Appeal to infer that the purpose of the proposed examination was an improper one. Hodgson JA (with whom Tobias and Bryson JJA agreed) held (at [27]) that the claimants had not identified any basis for undermining the primary judge's findings. By implication, his Honour rejected the submission that the administrators should have proven what information they lacked and needed. 70 The QBE Parties based a submission on the fact that the evidence before the court of the Receivers' purpose is evidence given by their solicitor, on information and belief. They invited the court to infer that the Receivers' true purpose is to seek to obtain a forensic advantage not available from ordinary pre-trial procedures, of a kind regarded as impermissible in Meteyard (at [44] per Basten JA). They said that the following matters support this inference: (i) a lack of direct evidence from the Receivers as to their purpose; (ii) the failure to rely on or produce the s 596C affidavit; (iii) the categories of documents sought; (iv) the fact that joint claims had been made by Southland and the Thiess entities, which have already commenced proceedings; (v) the size of the claim, in excess of $42 million; (vi) the fact that the claim is the only substantial asset to be realised by the Receivers for the benefit of the secured creditors; (vii) the fact that the party seeking orders is a receiver, privately appointed, not a court-appointed liquidator (citing Boys v Quigley (2002) 41 ACSR 499 at 505). 71 As to (i), in my opinion, while on some occasions and adverse inference may be drawn from the absence of direct evidence of purpose by the eligible applicant, no such adverse inference should be drawn in the present case. This is because the question that has come before me for decision arises after the examination summonses and other orders for production have been challenged at first instance and on appeal, and the examination summonses have survived. In those circumstances the issue of the Receivers' purpose in seeking to issue new orders for production arises within a limited compass, and I think it appropriate to accept and rely upon the solicitor's evidence. 72 As to (ii) it is clear from their submissions that the Receivers have chosen not to rely on their affidavit at this stage because of the history of the matter, and in particular the fact that no application for access to it was made until the application of 9 March 2006, after publication of the Court of Appeal's judgment. I do not regard the matters identified in (iii), (iv), (v) and (vi) as providing any basis for inference that the Receivers' true purpose is as alleged. As to (iv), the mere facts that proceedings have been commenced by Thiess and are contemplated by the Receivers do not of themselves constitute a basis for inferring an improper purpose (Re Excel Finance, 14 ACSR at 427; Re Leisure Developments, 41 ACSR at 281), and in my view the evidence as a whole does not justify the adverse inference. As to (vii), all that Anderson J said in Boys v Quigley (as did Young CJ in Eq in the present case) is that where the eligible applicant is a receiver and manager and is therefore not completely independent in the way that a liquidator is, "the court may be more concerned to look out for the possibility of abuse …" (41 ACSR at 505). Having looked out for the possibility, I can see no evidence that would support any such conclusion. There is no presumption against a receiver's propriety of purpose. 73 I agree with Mr Atkins' summary account of matters identified by the Court Appeal as being part of Southland's examinable affairs. I have given a somewhat fuller account of the Court of Appeal's reasoning, putting these matters into their context, earlier in these reasons for judgment, but Mr Atkins' summary account is nevertheless accurate. It seems to me that the categories of documents identified in the Schedule are documents that the Receivers could reasonably regard as being required for the examinations they propose to conduct, and I accept Mr Atkins' evidence that they have adopted this view. Utmost good faith 74 It does not seem to me improper or otherwise inappropriate for the Receivers, in pursuing examinations for the purpose stated by Mr Atkins, to investigate whether QBE has assessed the Southland claims with utmost good faith. That, it seems to me, falls within Southland's examinable affairs for the reasons given by Basten JA in Meteyard at [47]-[48]. A proviso, of course, is that the examination is not to be conducted as a dress rehearsal for cross-examination or to destroy the credibility of witnesses or otherwise for the predominant purpose of obtaining a forensic advantage not available of ordinary pre-trial procedures (at [44] per Basten JA), but that relates to the manner of conduct of the examination rather than to anything about the content of the draft order for production. 75 In my opinion the proposed consideration by the Receivers of whether QBE has acted with the utmost good faith is part of the overall purpose of considering whether proceedings should be instituted against QBE in respect of the insurance claims. It is a ground upon which such proceedings could be initiated rather than some independent purpose for conducting examinations and seeking ancillary production of documents. Basten JA at [47] identified "information necessary to assess the justification or otherwise of the denial [of liability]" as information relevant to the decision whether to institute proceedings and therefore information forming part of the examinable affairs of Southland. The QBE Parties submitted that the question of utmost good faith was raised for the first time in Mr Atkins' affidavit of 20 March 2006 and is a new issue. But the issue was raised by the Receivers' solicitors in their letter of 16 September 2004 (Exhibit A1, page 37, para 12(c)). 76 The QBE Parties submit that a breach of the duty of utmost good faith involves a lack of honesty on the insurer's part, and that an allegation of failure to act in utmost good faith is therefore akin to an allegation of fraud. If true, that submission is not inconsistent with my view that examination and production of documents relating to that matter is part of the process of information-gathering for the overall purpose of determining whether proceedings should be instituted in respect of the insurance claims. That being so, it is unnecessary for me to decide whether the submission is correct as a matter of law. I note, however, that it seems to be inconsistent with the reasoning of Emmett J (with whom Moore J agreed) in AMP Financial Planning Pty Ltd v CGU Insurance Ltd (2005) 55 ACSR 305, at 331 [89]. 77 The QBE Parties contend that there is no factual basis, of the kind required by Basten JA in Meteyard (at [39(d)]), for the court to order an examination or the ancillary production of documents on the ground of exploring whether QBE discharged its duty of utmost good faith. But there is some evidence, which I have summarised, indicating that the "creep and heave" issue was raised at a relatively late stage in the investigation of the incident by the QBE Parties, in circumstances warranting investigation by the Receivers, in my opinion. While the issue of utmost good faith is not directly relevant to the question whether the insurance claims are within or excluded by the terms of the insurance contract, it may affect the causes of action and claims for relief in any proceedings that may be commenced. Privileged documents 78 The QBE Parties submit that documents that are privileged in the hands of QBE are not properly the subject of an order for production because, in terms of s 596B(1)(b)(ii), they cannot relate to information about the examinable affairs of Southland that any of the examinees "may be able to give" (citing Meteyard at [52], [53], [132] and [133] per Basten JA). They contend that to make orders for production without any provision for excluding privileged documents would be inconsistent with the Court of Appeal's judgment. 79 In my opinion, the essential reasoning of the Court of Appeal on this question is as summarised in paras (f), (g) and (h) of my summary of the judgment, set out earlier. The Court of Appeal made it clear that the power to make orders for production is subject to the client legal privilege provisions of the Evidence Act. That was true when the power was found in Part 36 rule 12 of the Supreme Court Rules, and for the reasons I have given, it remains so now that the power is found in s 68 of the Civil Procedure Act. Because that is the position, the Court of Appeal has expressed the view that, in a case where it may be anticipated that questions of client legal privilege will arise, it is unwise to make unqualified orders for production on an ex parte basis. 80 An order framed so as to exclude documents that the producing party would be entitled to withhold as privileged was made in Re Equiticorp Finance Ltd; ex parte Brock (1992) 6 ACSR 725 and Basten JA contemplated the possibility of such an order in Meteyard (at [133]). But the Court of Appeal's reasoning does not mean that in every case, the order for production must contain such an express exclusion. The Uniform Civil Procedure Rules set out a procedure by which claims for privilege are to be made. As I have explained, the person to whom the order is directed may object to producing the document and once the objection is made, cannot be compelled to do so unless and until the objection is overruled. That is the position as a matter of law. If orders were made expressly excluding documents subject to client legal privilege, there would be a risk that the persons to whom the orders were directed would regard themselves as exonerated from taking any co-operative steps with respect to documents that they regarded as privileged, such preparing lists or even embarking on any process of review. At least in some cases, it may be preferable simply to add a note to the orders drawing the reader's attention to the relevant rules. But in my view it is unnecessary to take any such step in a fully contested inter partes matter where the parties are legally represented, and I do not regard the Court of Appeal as suggesting otherwise. In such a case an acceptable course, in accordance with the rules, is to make unqualified orders for production coupled with liberty to apply, which may be exercised for the purpose of giving directions designed to bring forward contested privilege claims for resolution, once specific documents have been identified and particular claims for privilege have been made in respect of those identified documents. 81 In the circumstances before the Court of Appeal, it appeared to the majority that the documents for which a claim to privilege would be made were likely to form a significant proportion of the documents that were the subject of the order, in circumstances where the categories of documents subject to privilege could not readily be severed. The Court of Appeal therefore decided to set the orders aside. Now, a different set of proposed orders is before the court, on an inter partes basis, and there are plausible submissions (including those, treated as submissions, in Mr Atkins' affidavit of 20 March 2006) bearing on whether claims to privilege are likely to be sustainable in respect of each of the categories of documents identified in the draft. Having considered those submissions, having weighed them up against the evidence and submissions of the QBE Parties (noting, in particular, the affidavit of Mr Hammond made on 21 March 2006), and bearing in mind Mr Atkins' evidence that the draft order in the Schedule has been revised and reduced in scope so as to accommodate submissions made on behalf of the QBE Parties as to documents said to be privileged or potentially privileged (see his affidavit of 20 March 2006, para 7), my view is that the proportion of documents identified in the Schedule that would be properly subject to claims for client legal privilege is not so significant that I would be justified in denying the application for orders. In my view, the better approach is to let the procedure prescribed by the rules unfold, so that specific questions of privilege can arise for determination. 82 The courts have not yet devised a wholly satisfactory procedure for resolving privilege claims where large quantities of documents are involved. It may be that no single procedure fits every case. But there are some general discretionary considerations to be borne in mind in considering, on an inter partes basis, whether to embark upon any process. They include the justification for imposing onerous obligations on the producing party. It is necessary to weigh up the effort, expense and disadvantage to be borne by the party against whom orders are sought (that is, the effort, expense and other disadvantage involved in identifying and preparing a large quantity of documents for production and assessing whether privilege should be claimed in respect of particular documents) against the prejudice that would be suffered by the party requiring production if the order were refused (in terms of thwarting the exercise of that party's statutory powers for the benefit of creditors or others whose interests have been recognised by the legislature). It is relevant to that balancing exercise that in the present case, the persons against whom orders are sought are QBE and two of its officers, in circumstances where QBE will be a defendant in any proceedings that may be instituted. A requirement to incur effort and expenditure that might be unreasonable in the case of a more remote party is less objectionable in such circumstances. And it is to be borne in mind that there is a procedure for recovery of the expenses involved in the production process, as noted below. 83 In my view, after weighing up such matters, the prospect that some of the documents described by the proposed orders may be privileged in the hands of QBE is not, in the present circumstances, a ground for declining to make the orders. I intend to grant liberty to apply so that appropriate directions can be made once the documents have been ascertained and particular claims for privilege had been identified. 84 My reasoning with respect to the question of privilege is subject to a qualification, regarding Bordereau reports, to which I shall now turn.

Communications between insurers 85 Para 5 of the Schedule would require production of entries in Bordereau reports of QBE provided to reinsurers in relation to the claims, where the reports were brought into existence during the period from 1 January 2004 to 31 December 2005. Bordereau reports are lists of claims or potential claims provided to reinsurers. 86 The QBE Parties object to this paragraph on two grounds. First, they say that Bordereau reports will necessarily contain or reveal the substance of legal advice that is subject to client legal privilege, a privilege which attaches not to documents but to communications. I think this is correct. Of their nature, Bordereau reports convey the insurer's assessment of risks, prepared for the purpose of reinsurance to protect the insurer from those risks. The insurer's assessment, in effect summarised in the report, will as a matter of practical inevitability be an assessment founded on legal advice and privileged either under s 118 or s 119, subject to any questions of waiver. To communicate the contents of the report is to communicate the conclusion of the legal advice. 87 Generally, where documents described in a proposed order are likely to include some privileged documents, the correct approach is, as I have said above, to make an order for production and to see what objections are raised, and then to deal with the objections by following the procedure under rule 1.9. But where, as with para 5, it appears inevitable that the whole of the category of documents will be privileged, it would be a waste of time to subject the parties to the objection process and the better course is to delete the whole category. 88 Since I accept the submission of the QBE Parties on the first ground, it is not necessary to deal with their second ground, but I shall record the argument. They submit that Bordereau reports convey the beliefs and attitudes of officers of QBE in relation to the claims, either in addition to, or in the course of conveying the substance of, legal advice. Reference is made to Basten JA's judgment in Meteyard, at [48]. There his Honour distinguished between information about the examinable affairs of the company that would assist the Receivers in making a decision as to whether to pursue a claim under the policy, and information about the beliefs and attitudes of QBE and its officers, which are not part of the examinable affairs of Southland, in his Honour's view. Costs of complying with orders 89 As a fallback position, the QBE Parties seek from the Receivers the payment of their costs of complying with the proposed orders for production, including the preparation of claims for client legal privilege. 90 The court has the power to attach conditions to the operation of its order for production so as to prevent the order for production from operating in an oppressive or unjust fashion: Re Kempal Pty Ltd (in liq) (1989) 17 NSWLR 550 at 551D; Re Spedley Securities Ltd (in liq) (1990) 4 ACSR 322 at 326 (Cohen J); Re Equiticorp Finance Ltd; ex parte Brock (1992) 6 ACSR 725 (Young J). In the Equiticorp case, Young J (as Chief Judge in Equity then was) summarised the effect of the cases as follows: "In general the view appears to be taken that the witness, at least if he is not directly concerned in the management of the company, is entitled to the costs of attendance at the examination and in gathering together the documents, but not the cost of his own legal representation …". 91 The QBE Parties are obviously not concerned in the management of Southland. They make a number of submissions to support their claim for an order covering their costs of compliance. 92 First, they submit that an order in the form of the Schedule, though much reduced in scope from earlier drafts, will still catch a large number of documents covering a substantial period of time. There is some evidence on this question. In his affidavit made on 17 February 2005, Mr Chylek estimated the quantity of documents held by each of the examinees. In his affidavit of 30 March 2005, he gave a more detailed quantification, and also gave evidence of the estimated time and cost involved in the QBE parties and their lawyers reviewing the documents for relevance and privilege and preparing them for production. He said that there were 67 full lever-arch folders of hard copy documents that would need to be reviewed, an estimated 30,150 pages. He estimated that it would cost $15,930 (excluding counsel's costs) to review them. There were 1,972 documents in electronic form (including e-mails) to be reviewed. He estimated that it would cost $16,350 (excluding counsel's fees) to review the electronic documents. It would also be necessary to prepare an affidavit for the purpose of claiming privilege, at further cost. 93 That evidence was updated in affidavits by Brendan Hammond made on 7 and 22 March 2006. Mr Hammond pointed out that since 30 March 2005 the volume of documentation had increased considerably. He asserted that there was a clear overlap between documents referred to in the proposed orders for production and documents brought into existence in contemplation of litigation, both prior to and subsequent to the commencement of the Thiess proceedings. He said that there are materials used by Crawford and McKensey comprising "source documents" received from Southland or Thiess entities that are not themselves privileged, but in a number of cases even those materials are not easily or readily separable from documents over which a claim for privilege is likely to be made. 94 Although this evidence is now outdated, because of the revision of the scope of the proposed orders at the hearing of the application, it is clear enough that the process of investigation of the claims by the QBE Parties has generated a very substantial quantity of documents, and it is likely that compliance with even the revised orders proposed in the Schedule will involve a substantial amount of work, including much work by lawyers of a kind that is other than routine, especially in assessing documents for privilege claims. 95 Secondly, the QBE Parties contend that the majority of the documents being sought will be subject to client legal privilege. My review of the categories of documents described in the Schedule suggests to me that some but not all documents may be subject to a proper claim for privilege, but (except as regards para 5, and para 6 if Mr Hammond's evidence is confirmed by the objection procedure under rule 1.9) I am not in a position to assess the portion of the total number of documents to which a proper privilege claim would attach. 96 Thirdly, they say that there is no general public purpose in the examinations because they are in aid of a purely commercial pursuit, namely the realisation of a cause of action for the benefit of Southland's financiers. The evidence on which they rely (para 9 of Mr Atkins' affidavit of 1 March 2006) indicates that the only remaining substantial asset of Southland is the insurance claim, and that any recovery in respect of the claim will, after payment of costs and expenses, go first to secured creditors, with any balance being available for secured creditors. Therefore it is correct that the primary outcome of successful proceedings will be payment of the secured creditors. 97 These matters, they submit, make it appropriate that the QBE parties be awarded the costs of compliance with the proposed orders, including costs associated with their inevitable claims for client legal privilege. They say that each of the QBE Parties is entitled to the costs of their attendance at the examination. 98 The Receivers submit that I should not make any determination with respect to costs until after production and assessment of privilege claims, and the examinations, have taken place. They rely on Re Total Entity Pty Ltd (in liq) (2003) 47 ACSR 577 and Re Fox Home Loans Pty Ltd (in liq) [2005] 1050, decisions of Barrett J. 99 In the first case, which his Honour applied in the second, he distinguished the power to order production of documents ancillary to an examination under Part 5.9 of the Corporations Act from the power to issue subpoenas. I note that in the case of subpoenas, the court is empowered by the rules (now UCPR 33.11) to order the issuing party to pay the amount of any reasonable loss or expense incurred in complying with a subpoena, though it will normally do so only after the expense has been incurred and can be measured (see Re Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 253 and 268). 100 In Re Kempal, cited above, McLelland J saw the power to order payment of expenses of an examinee as flowing from the power to attach conditions to an order made under the statute to compel the attendance of the examinee. That would suggest that the order for recovery of expenses should be made at the time when the primary order is made (here, the order for production of documents). However, in Total Entity Barrett J expressed the view that the court has inherent jurisdiction to require payment of expenses, and consequently the order for the payment of expenses could be made after the conclusion of the examination process. 101 Barrett J noted that under s 597B of the Corporations Act, if the court is satisfied that an examination summons was obtained without reasonable cause, it is empowered to make an order for the payment of some or all of the costs incurred by the person summoned, because of the summons. A decision under s 597B is, at least usually, taken only after the examination has been held. He expressed the view that the claim for expenses of producing documents should not, in the case before him, be addressed separately from the examinations, as in due course the applicants might be able to show an entitlement to an order under s 597B, or perhaps even a claim for expenses going beyond the limits of that section. He thought it wrong, in the case before him, to deal with the claim for expenses in isolation and in advance of production and examination, concluding (47 ACSR at 582): "It will be more sensibly addressed when the court can see what expense, trouble and inconvenience the persons concerned have in fact been put to and can properly assess the general quality of the [eligible applicant's] conduct in imposing those burdens." 102 I agree with this reasoning, which in my opinion should be applied in the present case. The application for access to the Receivers' affidavit 103 The examination summonses were issued under s 596B of the Corporations Act. According to s 596C(1), a person who applies under s 596B must file an affidavit that supports the application. The Receivers did so in this case, in January 2005. The affidavit is not available for inspection except so far as the court orders (s 596C(2)). 104 I was referred to a number of cases in which courts have considered whether access to the affidavit should be granted: Re Excel Finance Corp Ltd; application of England (1994) 14 ACSR 407; Re Moage Ltd (in liq) (1997) 25 ACSR 53; Re Pegasus Gold Australia Pty Ltd [1999] NSWSC 954; Re Leisure Developments (Queensland) Pty Ltd (in liq) (2002) 41 ACSR 276; Re Allstate Explorations NL (2003) 46 ACSR 379; Fetzer v Irving (as liq of Mawson KLM Holdings Pty Ltd (in liq)) (2005) 52 ACSR 354. The principles upon which the court acts, in the exercise of its discretion under s 596C, are not in contention. As Basten JA said in Meteyard (at [141]), after citing Fetzer v Irving, "an applicant for disclosure of the affidavit will generally be able to obtain access to the affidavit if he or she can demonstrate an arguable case that the issue of the summons exceeded the power of the court under s 596B and that access to the affidavit is likely to assist in determining the correctness of the challenge". However, as the Full Federal Court pointed out in Re Excel Finance Corp (14 ACSR at 429), there are sound reasons why inspection, though prima facie to be allowed, should not be freely granted, "for so to do could afford an examinee information which could permit the examination process to be frustrated", and could disclose confidential information that should properly be withheld. Those matters do not arise in the present case, but here there are other considerations pointing against the grant of access. 105 In the present case, as Basten JA noted in the Court of Appeal (at [19], [31]), the QBE parties did not seek to obtain a copy of the affidavit before applying to have the examinations summonses set aside. He noted that there had been some dispute as to whether they should have done so, but little turned on that question because the ground had moved between the date of the application for issue of the summonses and the date of the judgment at first instance. 106 He returned to that issue towards the end of his judgment, after considering the submission of the Claimants (the QBE Parties) that oral examination would be unlikely to produce significant new information because so much was already known by the Receivers (the Opponents). He said (at [140]-[141]): "140 The Claimants further asserted that it was for the receivers and managers to identify the scope of the proposed examination, in order for this matter to be tested. The receivers and managers responded, in part, by saying that they bore no onus and that the Court should assume that each summons was regularly issued on the basis of appropriate information made available to the Deputy Registrar, by way of affidavit. If the Claimants had wanted to see that affidavit, they could have applied to the Court for production: simply by challenging the issue of the summons the Claimants did not place an evidentiary burden on the Opponents to reveal the contents of the affidavit which, according to the statutory scheme, could be kept confidential, until the court otherwise ordered. "141 The position adopted by the Opponents in respect of this issue is correct. [He explained the principle upon which the court exercises its discretion to grant access to the applicant's affidavit, in the passage quoted above.] In the present case, the Claimants seek to establish [the proposition that the issue of the summons exceeded the court's power] without access to the affidavit. However, they presumably would not have commenced the present proceedings unless they believed they had an arguable case. If they had an arguable case, they had good prospects of obtaining access to the affidavit. I do not accept the Claimants' assertion that such an application would have been hopeless unless it involved the concession that the present proceedings were hopeless, which it clearly was not intended to do." 107 There is evidence before me now that, although no application for access was made during the hearing, Wotton & Kearney wrote to the Receivers' solicitors on 1 February 2005 requesting copies of all affidavits filed in support of the summonses and orders for production. The Receivers' solicitors replied on the next day, declining to provide them and referring to s 596C. After the hearing of the appeal from Young CJ in Eq's judgment, Wotton & Kearney made further demands for access to any affidavit filed in support of the application for the orders for production, by letters dated 10 June, 16 June, 28 July, 10 August and 24 August 2005. The Receivers' solicitors denied those requests. But no formal application for an order to access was made until the application filed in court on 9 March, and foreshadowed on 6 March. 108 The court's power to grant access to the affidavit is a discretionary power to be exercised in the circumstances of the instant case. Here the circumstances are very special. The challenge by the QBE parties to the examination summonses and orders for production has been heard and rejected at first instance, and their appeal has failed as regards the examinations summonses while generally succeeding as regards the orders for production. That entire process has occurred without access to the affidavit. Findings have been made as to whether the examinations are beyond power or for an improper purpose or oppressive. 109 The matter has now returned to the court for a decision about proposed new orders for production, in support of which new evidence has been provided concerning the purpose for which those orders have been sought. The court's task is to assess the proposed new orders by reference to the principles enunciated in the Court of Appeal and on the basis of the findings of fact that have been made. The court is not in a position to revise those findings by reference to evidence of purpose contained in the affidavit filed to initiate the examination process. The issue for the court is whether the making of those new orders for production is in ancillary step reasonably necessary for the purposes of the examinations that are to take place. 110 The QBE Parties submitted that, notwithstanding these matters, they should be allowed access because the Receivers' initiating affidavit has a continuing relevance to a number of matters. They contended that, with the Court of Appeal's judgment in Meteyard, the examination process and orders for production in connection with it may be open to challenge to the extent that it is conducted for the predominant purpose of having a dress rehearsal for cross-examination or destroying a witness's credit (at [45] per Basten JA) or in some other vexatious or oppressive manner. They said that the affidavit is relevant to those matters. They submitted that they have an arguable case for contesting the proposed orders for production on grounds that they are drafted too widely to be necessary for the purposes of the examinations, the orders for production will be oppressive by seeking material that the Receivers already have (at [39(c)] per Basten JA; compare Santow JA at [11]); and the documents to be sought include many privileged that are in the hands of QBE Insurance (Australia) Ltd, not readily separable from the rest. 111 The Receivers submitted, first, that the QBE Parties were not entitled to agitate the issue, in light of the decisions of Young CJ in Eq and the Court of Appeal, made without any application for access to the affidavit. They said that they did not seek to extend the scope of the permissible examination identified by the Court of Appeal, and there draft orders have been drafted carefully within that scope. Therefore the proposed orders for production will be, and can only be, merely ancillary to extant and valid examination orders which cannot now be further challenged. They do not seek to rely on the initiating affidavit in support of their application for the proposed orders. In these circumstances, they submitted, the initiating affidavit cannot have any bearing on the application for new orders for production. 112 I generally agree with this submissions, treating them as matters going to the exercise of my discretion rather than the application of any principle of law. The initiating affidavit retains some formal relevance to the purpose and scope of the examinations that are to be conducted. The purpose and scope of the examinations define the scope of permissible orders for production, in light of the principles stated by Bryson J in the BPTC case. But the initiating affidavit is unlikely to be of any significant assistance to the court on the present application, given that it was made in January 2005 and is no longer relied on, the validity of the examination summonses cannot now be challenged, there is now fresh evidence specifically devoted to the issue of the proposed new orders, and the judgment of the Court of Appeal provides the criteria by reference to which the scope of permissible orders is to be assessed. In the circumstances, my view is that it would be pointless, as a practical matter, to grant access to the affidavit, and its use in connection with the application for the issue of new orders for production would be likely to cause an undue waste of time. Those are the reasons why I decided, on 9 March 2006, to reject the application for access. 113 The Receivers also submitted that the QBE Parties had not satisfied the requirements of s 596C(2); that is, they had not established any arguable case of improper conduct. I did not make my decision on 9 March on this ground, and it is unnecessary to deal with it now that I have heard the application for the issue of new orders. 114 The QBE Parties emphasised, as a matter that should weigh upon the court's discretion, that the Receivers had not put not put forward any ground of prejudice for opposing access to the affidavit. I have taken that matter into account but it does not qualify the reasoning upon which I have refused the application for access. Conclusions 115 For the reasons I have given, I shall make orders for production directed to Mr Meteyard, Mr Holland and QBE, in terms of the Schedule except for para 5. I shall grant liberty to the parties to apply to me on two days notice, for the purpose of my making directions for the implementation of the procedure under UCPR 1.9 in respect of any claims that particular documents are privileged documents. I shall not make any order for recovery of the costs and expenses of compliance with the orders, on the basis that an application for such an order should be a separate application brought after the examination has taken place. 116 I shall direct the Receivers to bring in draft short minutes of orders to reflect my intentions. 117 Some submissions were made to me on the question of costs of the application for issue of the orders for production, and costs of the application for access to the Receivers' affidavit. I have decided not to make a decision about those costs until the parties have had the opportunity to consider these reasons for judgment and make submissions. SCHEDULE

AMP Financial Planning Pty Ltd v CGU Insurance Ltd

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Judgment (32 paragraphs)

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