Solicitors:
Meridian Lawyers (Applicants)
Henry Davis York (Respondents)
File Number(s): 2014/247085
[2]
Judgment - ex tempore
By Interlocutory Process filed by leave today, Mr John Smith and Mrs Rosemary Smith, who are holders of debentures issued by Provident Capital Ltd (Receivers and Managers Appointed) (in liquidation) ("Provident Capital"), seek orders releasing them from any implied undertaking concerning the use of certain documents for a specified purpose and releasing them from obligations imposed under a Confidentiality Deed made on 21 October 2014 for a specified purpose. The specified purpose is, in substance, to consider, if and as they see fit, commence and pursue proceedings against a third party in respect of matters concerning Provident Capital.
The application is supported by an affidavit of the Plaintiff's solicitor, Mr Douglas Raftesath, dated 29 May 2015, which sets out the background to the application. Provident Capital issued debentures to investors under a Trust Deed under Chapter 2L of the Corporations Act 2001 (Cth) and, in mid-2012, receivers and managers were appointed to Provident Capital ("Receivers") by the Federal Court of Australia. Messrs McGrath and Hayes were, in turn, appointed as liquidators of Provident Capital in late 2012.
Mr Raftesath draws attention to losses suffered by debenture holders and to an estimate provided by the receivers that their likely recovery will be in the order of 12 cents in the dollar of their capital invested. Mr Raftesath notes that, on 2 May 2014, the Australian Securities and Investments Commission authorised the Plaintiffs to act as eligible applicants for the purposes of Part 5.9 Div 1 of the Corporations Act in respect of certain examinations and that, pursuant to that authorisation, the Plaintiffs have issued summonses for examination to several persons and have procured the issue of orders for production of documents to the Receivers, pursuant to which documents have been produced to the Court. An officer and a former officer of a third party, which is the potential target of proceedings, have been examined by the Plaintiffs pursuant to Part 5.9 of the Act.
Mr Raftesath also notes that a substantial number of debenture holders have entered into a funding agreement with a litigation funder, both to fund the examinations they have conducted and, potentially, to commence proceedings for damages by way of class action. Those debenture holders hold a substantial value, by face value, of debentures issued by Provident Capital.
The application is brought for release from the implied undertakings in relation to specified documents, which are contained in schedules 1A and 2A to the Interlocutory Process. Those documents are identified with considerable specificity, and involve documents, such as, trust deeds, procedure manuals, financial facilities and documents relating to loans to particular entities by Provident Capital.
Documents which are subject to the Confidentiality Deed are listed in schedule 2A to the interlocutory application, and, in turn, largely appear to relate to valuation reports in respect of particular properties and, also, other documents, including, for example, loan arrears reports prepared by Provident Capital within a specified period.
Mr Raftesath's affidavit identifies the proposed purpose for which the plaintiffs wish to use the documents, namely, to consider and, if they see fit, commence and pursue proceedings against a third party. Mr Raftesath's affidavit also identifies with specificity the nature of the proceedings that are sought to be pursued.
The Plaintiffs have sought the consent of the Receivers to be released from the implied undertaking and obligations under the Confidentiality Deed. The Receivers neither consent to nor oppose the orders that are sought. Mr Catchpoole, who appears for them in this application, confirmed that position in oral submissions and also made several helpful submissions in respect of the background to the application.
The first application which is brought by the Plaintiffs is, as I have noted, for release from the implied undertaking which relates to documents produced to a court under compulsion. The nature of that undertaking was summarised in National Mutual Holdings Pty Ltd v Sentry Corporation [1990] FCA 156 at [32], recently approved by the Federal Court in BCI Finances Pty Ltd (in liq) v Commissioner of Taxation [2014] FCA 898, as involving a duty not to disclose, or make use of a document for purposes other than the Court proceedings without the leave of the Court, or the person from whom the document has been obtained. The case law has considered the circumstances in which an implied undertaking may be released which, in the ordinary course, requires that the applicant for release from the undertaking show "special circumstances", although, that does not require the existence of extraordinary factors, but simply that good reason be shown why, contrary to the usual position, the documents should be able to be used in other proceedings: Springfield Nominees Pty Ltd v Bridgeland Securities Ltd (1992) 38 FCR 217; Liberty Funding Pty Ltd v Phoenix Capital Pty Ltd [2005] FCAFC 3 at [31]; BCI Finances Pty Ltd (in liq) v Commissioner of Taxation, above at [39].
The case law indicates, generally, that a party who seeks such a release must specify the document in respect of which the release is sought, specify the purpose for which the release is sought, and satisfy the Court of the relevant circumstances. In the present case, the form of the Interlocutory Process and Mr Raftesath's affidavit is sufficient to identify the documents for which that release is sought and the purpose for which they are to be used. There remains the question, which arises in this case in a particular context, to which I will refer, of whether the circumstances that would warrant a release are established.
The primary position of the Plaintiffs, as indicated by Mr Martin, who appears with Mr Drew for them, is that release from the implied undertaking is not necessary, in the present case, although, it is sought for more abundant caution. Mr Martin draws attention to the observations of Jacobson J in Re Allco Finance Group Ltd (recs & mgrs apptd) (in liq); Gothard v Fell [2012] FCA 495; (2012) 88 ACSR 326 ("Gothard v Fell") at [62], that a liquidator may use information, or documents produced in an examination for the purposes of subsequent proceedings to get in and realise the company's assets in liquidation without the Court's leave. That proposition is well established, and reflects the purposes of an examination under Part 5.9 of the Corporations Act.
It is plainly arguable that, where the Plaintiffs were designated as eligible applicants for the purposes of seeking, and subsequently conducting such examinations, then they, like a liquidator who had conducted such an examination, would also be entitled to use information, or documents produced in it for the purposes of bringing in the claims that were the subject of the examinations. On one view, there would be little utility in authorising them to conduct such examinations if they were not entitled to have regard to the information obtained by them for that purpose. It seems to me that there is a strong argument, for those reasons, that the Plaintiffs do not, as they have suggested, require leave to use the documents for the purposes for which they seek to use them, because that use is, in fact, consistent with the production of those documents in the examinations.
In Gothard v Fell above, Jacobson J ultimately did not decide that question, and it seems to me that I also need not decide that question, because it seems to me that the circumstances in which the implied undertaking should be released are established in this case, and it is, in any event, desirable to take that course to avoid any uncertainty that might otherwise arise.
The Plaintiffs secondary position is that they should be released from the implied undertaking. They submit that special circumstances are established, but they also draw attention to the careful analysis of the application of that concept in the context of liquidation by Jacobson J in Gothard v Fell above. His Honour there noted that the special circumstances test may be more readily satisfied in circumstances where the use of documents is consistent with the purposes of an examination under Pt 5.9 of the Corporations Act. His Honour also noted (at [48]) that the question of special circumstances falls to be determined by reference to the objectives underlying the statutory regime contained in Pt 5.9 Div 1 of the Corporations Act and that, where a person is an eligible applicant under Pt 5.9, he or she has standing both to conduct the examination and to carry through the purposes that underlie Pt 5.9: Re Eurostar Pty Ltd (in liq) [2003] NSWSC 633 at [28]; Gothard v Fell above at [51]. His Honour there also referred to the observations of Santow J in Re New Cap Reinsurance Corporation Holdings Ltd [2001] NSWSC 835 at [15] that the statutory purpose can extend to investigating and potentially instituting proceedings against those who contributed to a corporate collapse.
Importantly, the reasoning of Jacobson J in Gothard v Fell is not directed to the particular fact that the applicants in that case were the receivers and managers of the corporation, but, instead, to the fact that those persons were eligible applicants for the purposes of Pt 5.9 of the Corporations Act. The plaintiffs in this case are similarly eligible applicants for that purpose.
It seems to me that two further matters reinforce the characterisation of the potential use of the document as one that is for the purposes of Pt 5.9 of the Corporations Act, and, accordingly, a use that there is good reason to permit, so as to establish special circumstances distinguishing it from the usual case. The first is that, as Mr Catchpoole points out, the Plaintiffs seek to access the documents, not only for a private individual purpose, but as the persons bringing proceedings that are in the nature of representative proceedings, involving a substantial number of debenture holders. Second, any recoveries by the Plaintiffs could potentially reduce their claim against Provident Capital in the winding-up, at least, as far as it is seriously arguable, that the plaintiffs could not both recover damages, reducing their loss in respect of their debentures, and at the same time recover the full value of their debentures in the winding-up, without breach of the rule against double recovery. Even if the ultimate working out of that principle is that the Plaintiff's damages would be reduced, to the extent that they are likely to recover in a winding up, there is still a nexus with the winding up that arises from that matter.
For these reasons, I am satisfied that special circumstances are established to warrant a release from the implied undertaking, particularly where the documents for which that release is sought are those of Provident Capital, and where they have a plain nexus with the winding up, as I have noted, and where their use for the purposes of proceedings brought by debenture holders would be consistent with examinations already conducted by them for the purposes of Pt 5.9 of the Corporations Act.
The second claim brought by the Plaintiffs was for an order that they be released from certain obligations under a Confidentiality Deed made on 21 October 2014 with the Receivers, which appears to relate to the subset of the documents produced that are listed in Schedule 2A of the Interlocutory Process. It seems to me, for reasons that I will indicate, that the order sought in that regard is not necessary and, would not be effective, if made, given the terms of the Confidentiality Deed. The reason the order is not necessary is that, as emerged in the course of submissions, the use to which the Plaintiffs seek to put the documents seems to me to be an "authorised use" for the purposes of the Confidentiality Deed, and therefore permitted under that Deed. Clause 2.2 of that Deed provides for the Plaintiffs to keep the relevant documents confidential and not to disclose them to any person, and only to use the confidential information for the "authorised purpose". While the first requirement as to confidentiality is not specifically limited to permit disclosure for the "authorised purpose", it seems to me that it would be likely to be read in that context, and the second requirement specifically permits, or at least, does not prohibit the use of the confidential information for the authorised purpose. The term "authorised purpose" is, in turn, defined as meaning "the public examinations contemplated by the [Plaintiffs] in the course of the Proceeding, and any matters relating to the winding-up of Provident". The use of the documents in the potential proceedings against a third party are not use in the course of the examination. However, it seems to me that they are plainly a use in respect of a matter "relating to the winding-up of Provident". That relationship is established because, as I have noted, a claim brought by the debenture holders against third parties will interact with the loss for which they will claim in the winding up, and it also arises from the examinations which they have conducted under Pt 5.9 of the Corporations Act, using a mechanism authorised by the winding-up provisions of the Act. Where that relationship is established, the use of the relevant documents seems to me to be a use consistent with the authorised purpose, such that release from the Confidentiality Deed is not required.
I should note for completeness that it does not seem to me that an order made by the Court releasing the Plaintiffs would have had any utility, given the terms of the Confidentiality Deed, had I not been satisfied that the proposed use was consistent with the authorised purpose. Clause 2.5(c) of the Confidentiality Deed contains an exception where the Plaintiffs, or their representatives, are obliged to disclose information by order of a court. That exception would apply, for example, if a subpoena were issued to the Plaintiffs or, their representatives, requiring the production of documents. It does not seem to me to be sufficiently wide to extend to the position where the Plaintiffs or their representatives were permitted as distinct from required, to use that information by an order by the Court.
Because I have reached these views, that permit the use of the information, at least, for the immediate purpose, as an authorised use of the information, it is not necessary to explore further what other remedies might have been available for the Plaintiffs, had the Receivers conducted themselves in a manner that obstructed the use of documents for a proper purpose. I am not suggesting, in making that observation, that the Receivers have in any way conducted themselves in such a manner in this application. I note, however, that the existence of such remedies may be relevant, if, at a future stage, questions arise as to, for example, the ability to tender documents in the course of proceedings, if they would otherwise fall within the non-disclosure provisions of the confidentiality agreement, and absent consent from the Receivers to such a course.
The final issue which arose in these proceedings is a question whether third parties are potentially affected by the orders that are sought and should be given notice of those orders and an opportunity to be heard. On one view, that is a matter for the Plaintiffs rather than for the Court. It arises because, if the Court were to make orders in the absence of third parties, whose interests were affected by the orders that were made, those third parties may potentially have an opportunity to set aside those orders, ex debito justitiae, or, at least, to have a further opportunity to be heard as to whether those orders should be made or varied. In the present case, it would plainly be undesirable, as a practical matter, that orders be made and take effect and that the Plaintiffs then proceed to access, or use particular documents for a particular purpose, if the status of the order authorising that course remains, in a sense, contingent because it might be set aside.
Mr Martin properly accepted that, if the Court considered that there was a risk that that position might arise, an appropriate course may be to make orders of the kind that I propose to make, but stay them for a short period, and direct that notice be given by the Plaintiffs to those persons who might arguably have such an interest - noting that the Plaintiffs contend that they do not, in fact, have such an interest - so that they might, if they wish, seek an opportunity to be heard.
I am conscious that Mr Martin has put an argument, which is plainly seriously arguable, that there is, in fact, no third party interest in the documents which the Plaintiffs seek to consider and use for the purposes of any potential proceedings, because those documents are documents of Provident Capital, not third party documents. There is real force in that argument where, for example, the documents that are sought to be produced are not documents of a third party against whom proceedings are sought to be brought, nor are they, for example, the transcripts of examinees, where those examinees' interests may be affected by use of the transcripts.
It seems to me that there is, at least, a possible argument to the contrary. Where documents are sought to consider, and potentially commence proceedings against a third party, it might be argued that the third party's interests are affected by whether that order is made or not. For that reason, it seems to me desirable to make an order permitting the use of the relevant documents, but to stay that order for a short time, and to direct the Plaintiffs to give notice to persons whose interests are arguably affected, leaving them to identify who falls within that category, again, recognising that that position is contrary to their primary position that no persons fall within that category.
Accordingly, I make the following orders:
An order that, to the extent necessary, the Applicants (including their legal representatives) be released from any implied undertaking concerning the use of the documents referred to in Schedules 1A and 2A to the Interlocutory Process filed 2 June 2015 so that the Applicants may use those documents for the purposes of considering and, if they see fit, commencing and pursuing proceedings against Australian Executor Trustees Limited ACN 007 869 794 for damages under s 283F(1) of the Corporations Act (Cth) (Act) for failing as trustee to exercise reasonable diligence to ascertain breaches by Provident Capital Limited (receivers and managers appointed) (in liq) ACN 082 735 573 (Provident) of the provisions of the Trust Deed and Chapter 2L of the Act in contravention of its obligations under s 283DA(b)(ii) of the Act.
By noon on 3 June 2015, the Plaintiffs give notice of these orders, which may be given by facsimile or electronic means, to such persons as they consider may arguably have an interest in the matter, without prejudice to their contention that no such persons are interested in fact.
Grant leave to any persons notified of the orders, or any other person with a proper interest in them, to bring an interlocutory application to vary or set aside these orders, made returnable before Black J at 2pm on 9 June 2015.
Stay Order 1 to 4pm on 9 June 2015.
The Interlocutory Process be stood over before Black J at 2pm on 9 June 2015.
[3]
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Decision last updated: 16 June 2015