Notice to investors
35 In ZMB v Warne (Full Court), the Full Court dispensed with the requirement (which would usually apply) to notify the investors of the application because the compromise involved no payments which would diminish the fund (but rather sought to preserve it) and the investors were not precisely identified.
36 The Full Court considered the fact that there would be no payments from the fund to be the more important justification for dispensing with notice.
37 At the date of the present application, the identity of the investors represented by the seventh defendant had still not yet been finally ascertained. In contrast to the compromise approved by the Full Court in ZMB v Warne (Full Court), however, the present compromise agreement involved the payment of moneys from the Mews fund. Touma submitted that it sufficed, in dispensing with notice, that the compromise sought to preserve the Mews fund, particularly by eliminating the risk of its total depletion in satisfaction of the Touma and ZMB claims, and by eliminating the Touma investment claim, including its potential to share in any increase to the Mews fund.
38 The Full Court in ZMB v Warne (Full Court) did not, in my view, seek exhaustively to define the circumstances which might eliminate the need to give notice to the investors on an application to approve a compromise by a representative such as the seventh defendant. Rather, in my opinion, it recognised that, in some circumstances, the usual need for notice would not apply, and the factors it identified in that case were illustrative, rather than prescriptive.
39 In the present case, Simon Dollard, the partner with the care and conduct of the proceeding on behalf of the seventh defendant, in his second affidavit, deposed to additional circumstances asserted to render notice unnecessary in this case.
40 Mr Dollard referred to various reports of the receivers, setting out the steps they had taken to identify and contact parties with a claim to the Mews land or assets, including writing to known persons, placing advertisements and attempting telephone contact.
41 Mr Dollard exhibited lists identifying claimants on the Mews Scheme assets from time to time and estimated the costs of notifying those investors who were currently identified at $1,500 to $3,000.
42 Mr Dollard also deposed:
… it is not intended that any notice to the Investors would annexe, or refer to the matters dealt with in, Counsels' Confidential Opinions.
By reason of the absence of a declaration identifying any particular claimant as a member of the class whom the Seventh Defendant represents, as well as the potential risks associated with any disclosure of the matters set out in paragraphs 38 to 42 of Confidential Exhibit SJD-38, I do not propose to advise the Seventh Defendant to give instructions to provide the information in Counsels' Confidential Opinions, on a 'common interest' basis, to any persons identifying themselves as investors. Accordingly, the recipients of any notice would not be fully informed of all matters relevant to the Court's consideration, and thus the process of notification for the purpose of enabling an objection to be made may be futile. Further, the time that would be taken in the Court determining the standing of any objector would cause further delay in the due administration of the winding up, and in particular, in the taking of any steps to further enlarge the pool for the benefit of the class as a whole.
43 The principles relevant to an order for confidentiality of materials adduced by a liquidator when seeking directions in relation to the commencement, funding, defence or conduct of litigation are well recognised. As Templeman J stated in Re Bell Group Ltd (in liq); Ex parte West Australian Newspapers Ltd [2000] WASC 94 at [9] to [13]:
Any person who is appointed by the Court or is subject to the supervision of the Court, such as a trustee or liquidator, is entitled to seek directions from the Court at any time so as to ensure that that person discharges his or her duty in a proper manner.
Quite frequently a liquidator or trustee who is involved in litigation, as Mr Totterdell is in that capacity, will apply to the Court for directions as to the manner in which the litigation should be conducted. Such applications may often require the liquidator or trustee to disclose to the Court matters relating to the conduct of the litigation which should not be disclosed to the other party to that litigation.
In those circumstances, and for those reasons, what passes between the liquidator or trustee and the Court is confidential. The other party to the litigation is not present.
To give another example, a liquidator or trustee may want to obtain the guidance of the court as to whether he should commence litigation, or defend litigation which has been commenced against him. In those circumstances one of the matters to which the Court will frequently have regard is an opinion of counsel as to the merits of the litigation and the liquidator's prospects of success or otherwise.
Clearly those matters are confidential between the liquidator and the court. If they were made public, then they might come to the attention of the other party or potential party. This, of course, would not be in the interests of the administration of justice.
44 In HIH Insurance Ltd [2007] NSWSC 498, liquidators submitted that if the evidence adduced in support of their application for directions and other relief in relation to the progress of and steps to be taken in litigation were made available to any of the defendants, it would probably significantly prejudice their ability advantageously to pursue or conclude the claims for the benefit of creditors. Barrett J stated at [4] to [6]:
Again, as there, the liquidators accept that there is a strong and clear public interest in open justice and that except in exceptional circumstances, proceedings should take place in public.
Today, as on the previous occasions, there are two other public interests competing with the public interest in open justice. The first is the public interest in the due and beneficial administration of the estates of insolvent companies by liquidators appointed by and answerable to the court, that administration being for the benefit of creditors. I previously observed that the public interest in the due administration of the insolvent estates of the HIH companies is particularly pronounced when there are many thousands of creditors from all walks of life.
The second competing or countervailing public interest arises from the fact that applications before me relate to the pursuit of litigation. There is a clear public interest in the due administration of justice, in that in litigation in the normal course an ordinary litigant would keep close to the chest, as it were, the matters that the liquidators, because of their position, see fit to bring to court. The liquidators, because of their position, should not be set aside from other litigants and be placed to a disadvantage when, as I say, they are acting for the benefit of many thousands of creditors whose interests are very much to the fore.
45 In the present case, given the content of the confidential opinions of counsel, their dissemination to the entire body of persons currently identified as investors would be contrary to the interests of the administration of justice, as the opinions could come to the attention of potential defendants and otherwise prejudice the advantageous pursuit of claims for the benefit of the investors. Nevertheless, in the absence of access to the relevant information, investors could neither properly assess the merits or otherwise of the compromise, nor formulate cogent and informed objection.
46 In such circumstances, it would be futile or ineffective to notify those investors who were currently identified of the application for approval of the compromise, as particular investors' standing may be doubtful, the investors could not be fully informed, and objections based on only part of the relevant information might occasion fruitless cost and delay.