Hewson v Gothard; In the Matter of Allco Finance Group Ltd [2014] FCA 412 | Case summary

The Principal Judgment 7 ASIC produced documents and other materials in answer to the subpoenas served upon it as follows: (a) In answer to the first subpoena, in March 2010. (b) In answer to the second subpoena, in November 2010. (c) In answer to the third subpoena, in April and May 2011. 8 In broad terms, the materials produced in answer to the first two subpoenas comprised electronic copies of the transcript of examinations conducted by ASIC of former officers of Allco pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and bundles of documents used by ASIC in the preparation of or conduct of such examinations. In answer to the third subpoena, ASIC produced further materials of the same character as well as a database controlled by Rubicon Asset Management Limited (In Liquidation) which had been produced to ASIC by that company in 2010. 9 The Hewsons sought access to the ASIC documents and materials for the purpose of considering whether and upon what basis they might commence proceedings against Dr Fell and the estate of David Raymond Coe both for themselves and their superannuation fund and on behalf of a class of persons who also claimed to have suffered loss as a result of the conduct of Dr Fell and Mr Coe. Mr Coe was formerly a director of Allco. Prior to the hearing of their application, the Hewsons had indicated that they were also interested in proceeding against both Mr Lennox and Mr Lewis. During the hearing before me, Senior Counsel for the Hewsons informed the Court and the other participants in that hearing (including Messrs Lennox and Lewis) that his clients no longer wished to pursue Messrs Lennox and Lewis and would not be joining them in any proceedings which might ultimately be commenced. Notwithstanding this concession the Hewsons pursued their claims for access to the transcripts of the s 19 examinations of both Mr Lennox and Mr Lewis as part of their claim for all s 19 transcripts which had been produced to the Court by ASIC. They also pursued access to other documents relating to those examinations. 10 The Hewsons contended before me that the ASIC materials were "… records of the [public] examinations [conducted by the Receivers pursuant to s 596A of the Act] …" in the period 22 to 26 March 2010 and on 8 September 2011, even though those materials were not part of any written record of such examinations and did not constitute a transcript of such examinations within the meaning of s 597(14) of the Act. They argued that the ASIC materials had been brought to Court in order to comply with an order of the Court compelling production of those materials and in aid of the public examinations which the Receivers intended to conduct. The proposition was that, once the ASIC materials were brought to Court in answer to the subpoenas served upon ASIC and made available to the Receivers, they immediately became part of the "... records of the [upcoming s 596A] examinations" and thus became amenable to an exercise of the Court's discretion under s 596F(1)(e) of the Act. 11 It must be accepted that the Receivers had requested the Court to issue the subpoenas and thereby to require the production of the ASIC materials for the purposes of and in order to assist the public examinations which they had in mind. As I have already noted, those examinations were actually conducted in the period 22-26 March 2010 and again on 8 September 2011. Several former officers of Allco were examined in March 2010. The only person examined on 8 September 2011 was Dr Fell. On that occasion Dr Fell was questioned only about the Rubicon transaction. 12 On 28 November 2012, I ordered the Receivers to make available to the Hewsons the transcripts of the public examinations conducted by the Receivers pursuant to s 596A of the Act. On the same day, by consent, I also ordered the Receivers to produce to the Hewsons all documents which had been shown to Dr Fell and referred to in the transcript of the examination conducted of Dr Fell on 8 September 2011 other than those documents called for by par (1)(c) of the Hewsons' Interlocutory Process, that is to say, other than the ASIC documents and materials. All of the documents which I ordered to be produced were already in the public arena. The transcripts constituted the record of the public examinations conducted by the Receivers and the other documents and materials had been specifically referred to or marked for identification during the course of those examinations. 13 The second and third subpoenas issued at the request of the Receivers were issued after the initial round of examinations which took place in the period 22-26 March 2010 had been completed. Although the persons examined in March 2010 were not finally released until later, there was no evidence before me that proved that those materials had been required to be produced to the Court in aid of the March 2010 examinations nor was there any evidence before me to the effect that they had been deployed in some way in connection with those examinations. 14 The only ASIC materials which could conceivably have been required to be produced in aid of the first round of examinations were those materials produced in answer to the first subpoena. 15 The transcript of the Receivers' public examination of Dr Fell pursuant to s 596A of the Act which took place on 8 September 2011 was tendered in evidence before me. There was no specific reference in that transcript to any part of any of the s 19 transcripts which had been produced to the Court prior to 8 September 2011 nor was it apparent on the face of that transcript that particular use had been made of other materials produced by ASIC in answer to the subpoenas. However, a small number of emails and other documents which formed part of the materials produced to the Court by ASIC in answer to the second and third subpoenas were referred to during the course of Dr Fell's examination on 8 September 2011 and were the subject of questions directed to Dr Fell on that occasion. There was no evidence before me that any other materials produced by ASIC in answer to the second and third subpoenas were in fact deployed in the examination of Dr Fell conducted by the Receivers on 8 September 2011. 16 In summary, therefore, there was no evidence before me that materials produced by ASIC in answer to the first subpoena had been referred to or marked for identification at any of the initial round of examinations conducted by the Receivers in the period 22-26 March 2010 and the only evidence suggesting that any of those materials or any of the materials produced in answer to the second and third subpoenas had been referred to or marked for identification at the later examination of Dr Fell which took place on 8 September 2011 was confined to a handful of emails and two other documents. It was suggested that the Receivers had obtained possession of those documents in any event from sources other than ASIC. It was not clear whether the documents which were actually deployed by the Receivers on 8 September 2011 had been produced by ASIC or had come from some other source. 17 Thus, the main issues raised by the Hewsons' application were whether materials produced by ASIC which comprised the transcript of examinations conducted by it pursuant to s 19 of the ASIC Act and other documents deployed in or for the purposes of those s 19 examinations but which had not been specifically referred to or marked for identification at any of the s 596A public examinations conducted by the Receivers, were susceptible to a direction by the Court pursuant to s 596F(1)(e) of the Act requiring the Receivers to make those materials available to the Hewsons and, if so, whether, in the exercise of the Court's discretion, such a direction ought be made. 18 The Hewsons also relied upon s 486 and s 511 of the Act. For reasons which I explained in the principal judgment, I declined to grant access pursuant to those provisions. 19 It is true, as the Hewsons now submit, that, in the principal judgment, I concluded that the ASIC materials which had not been referred to or specifically deployed during the course of the public examinations conducted by the Receivers under s 596A of the Act were not amenable to an access direction under s 596F(1)(e) of the Act. I took that view because I considered that those materials were not "… records of the [s 596A] examinations …" within the meaning of s 596F(1)(e) of the Act since they had not been brought into the public arena during the course of those examinations but had merely been brought to Court prior to the conduct of those examinations and potentially in aid of them. The confidential nature of the ASIC materials had been preserved because they had not been disclosed in public and continued to be protected by the confidentiality regime which had been put in place by the Court. It is also true that, in taking that view, I declined to follow general observations made by Santow J in Re New Cap Reinsurance Corporation Holdings Ltd [2001] NSWSC 835 to the effect that documents required to be produced to the Court in connection with public examinations to be conducted pursuant to s 596A and s 596B of the Act which were not actually utilised in those examinations were amenable to a direction pursuant to s 596F(1)(e) of the Act because they were still capable of informing those examinations and of influencing the questions asked (see Re New Cap at [39] and at [43]). 20 Although in Re Strarch International Pty Ltd (2005) 191 FLR 225, Barrett J endorsed the proposition that there was a difference between "… records of the examination …" referred to in s 596F(1)(e) of the Act and a "written record" referred to in subs (13) and subs (14) of s 597 of the Act and that "… records of the examination …" may include "… things additional to any record of the questions and answers made in conformance with a s 597(13) order", Barrett J did not specifically address or decide the question of whether documents produced in answer to a subpoena issued at the request of an eligible person within the meaning of s 596A of the Act for the purposes of an examination to be conducted under that section would, in every case and in all circumstances, fall within the expression "… records of the examination …" within the meaning of s 596F(1)(e) of the Act even though none of those documents were specifically referred to or marked for identification at those examinations. 21 In Re Eurostar Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2003] NSWSC 633 at [24], Campbell J agreed with Santow J that the Court's discretion under s 596F(1)(e) was available to be exercised in relation to documents produced to the Court under compulsory process for the purpose of the examination but which were not actually used in the course of the examination. At [25], however, his Honour went on to observe that it would not always be appropriate for the Court to exercise that discretion in favour of access and that the distinction between documents actually used in the examination and those which were not may be important when the Court came to exercise its discretion under s 596F(1)(e). In Re New Tel (In Liq) (2008) 167 FCR 435, at [24]-[25] 440, McKerracher J referred to [43] in Re New Cap. His Honour assumed the correctness of Santow J's observation and went on to consider whether, upon that assumption, a direction ought be made. His Honour declined to make the direction sought. I do not think that his Honour accepted the correctness of Santow J's proposition. All that he did was assume its correctness and proceed to consider the issues before him upon the basis that that assumption was correct. In Gothard v Fell (2012) 203 FCR 236 at [76] 245, Jacobson J cited with apparent approval [39] in Re New Cap in support of the Receivers' application to be released from confidentiality undertakings and other undertakings previously given. Jacobson J was not dealing with an application for a direction under s 596F(1)(e) of the Act. The context in which he cited [43] of Re New Cap was very different from the present context. 22 At [59] of the principal judgment, I made clear that, had I considered that s 596F(1)(e) of the Act was an appropriate source of the Court's power to grant the access sought by the Hewsons in their application, I would have been inclined to refuse access essentially for the reasons advanced on behalf of Dr Fell and on behalf of Messrs Lennox and Lewis. I also said that the important discretionary factors upon which I relied ultimately to decline access would have constituted powerful discretionary reasons for declining access under s 596F(1)(e) of the Act.

Costs Decision 23 Each of the persons now seeking a costs order in respect of the Hewsons' access application is not a party to the proceeding or to the Interlocutory Process by which the Hewsons' access application was made. Each of those persons was given leave to be heard at the hearing of the Hewsons' application upon the basis that he would not, by reason of being granted that leave, become a party (as to which see r 2.13(1) of this Court's Corporations Rules). 24 It has been held that costs may be awarded against a non-party to litigation (Knight v FP Special Assets Ltd (1992) 174 CLR 178) and that, under s 43 of the Federal Court of Australia Act 1976 (Cth), this Court has the power to award costs in favour of a non-party (O'Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 at [17]-[26] per Nicholson J and the authorities referred to therein). 25 The guiding principles for the award of costs in favour of a non-party were explained by Emmett J in Fletcher and Barnet; In the matter of Octaviar Ltd (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq) (No 4) [2012] FCA 344 at [12] where his Honour said: " ... the making of an order for costs in favour of a non-party will be exceptional and any application for such an order must be treated with considerable caution. Regard must be had in each case to the particular circumstances and the requirements of reason and justice, and the nature of the relationship between the non-party and the litigation will be relevant in that regard (see O'Keeffe v Hayes Knight GTO Pty Limited [2005] FCA 1559 at [24]). In general, a special factor outside the ordinary and expected course of events, engendering a justifiable expectation, in the mind of a non-party, of compensation for costs, must exist before an order will be made for costs in favour of a non-party against a party. In general, a person who seeks, and is granted, leave under rule 2.13 of the Corporations Rules to appear and be heard, thereby limiting exposure to an order for costs, can have little expectation of being awarded costs (see Re Pan Pharmaceuticals Limited; Selim v McGrath (2004) 48 ACSR 681 at [20])." 26 The observations of Emmett J which I have extracted at [25] above captured the reasoning and statements of principle developed by Barrett J in a number of authorities: Re Pan Pharmaceuticals Limited; Selim v McGrath (2004) 48 ACSR 681 at [11]-[20], 684-686 esp at [20] 686; Re HIH Casualty and General Insurance Ltd [2006] NSWSC 6 at [8]-[16]; and Grocon Constructors Pty Ltd v Kimberley Securities Ltd [2009] NSWSC 691 at [2]-[5]). 27 In the present case, until they filed their Interlocutory Process on 19 October 2012, the Hewsons were strangers to this proceeding. They were, of course, interested in the subject matter of the proceeding and in the question whether the Receivers or the liquidators or ASIC would pursue causes of action against some of the former directors of Allco in the interests of its contributories and creditors. By making their application, the Hewsons resuscitated a proceeding which was, by October 2012, to all intents and purposes, moribund. While it was convenient and appropriate to use this proceeding as the vehicle for their application, the action which they took inevitably resulted in other interested parties (Dr Fell, Mr Coe, Mr Lennox and Mr Lewis) being drawn into the litigation and wanting to be heard. The Hewsons must have foreseen that at least some of the persons who had been examined by ASIC pursuant to s 19 of the ASIC Act would wish to be heard in opposition to the access orders which they were seeking. In particular, given that they had identified Dr Fell and the other interveners as potential defendants in the actions which the Hewsons had in mind commencing, the Hewsons must be taken to have appreciated that all of those persons would inevitably have wanted to be heard. 28 None of ASIC, the Receivers or the liquidators wished to be heard in relation to the Hewsons' access application. Each of those persons and ASIC informed the Court that they neither consented to nor opposed the relief sought by the Hewsons. In those circumstances, the only contradictors who appeared at the hearing of the Hewsons' application were Dr Fell, Mr Lennox and Mr Lewis. 29 I regarded the presence of at least one contradictor to be essential to the proper and fair disposition of the Hewsons' application. I found the evidence tendered by the contradictors and the submissions made on their behalf to be of considerable assistance in determining that application. I consider that the interveners and their legal representatives conducted themselves efficiently and appropriately at all times. 30 Prior to the hearing before me, the legal representatives for Messrs Lennox and Lewis had sought to clarify whether the Hewsons really intended to sue their clients but had not received a satisfactory answer to their enquiry. It was only at the hearing itself that Senior Counsel for the Hewsons finally did state with clarity that his clients did not intend to sue either Mr Lennox or Mr Lewis. By then, Messrs Lennox and Lewis had incurred the costs of the hearing. 31 It seems to me that, in truth, by making their application, the Hewsons initiated an inter partes contest with their principal protagonists, Dr Fell, Mr Coe, Mr Lennox and Mr Lewis. Those persons comprised the available contradictors whose participation would be necessary for the fair disposition of the Hewsons' application. The contradictors succeeded in their opposition to the relief claimed by the Hewsons. Because of that success, they now seek their costs. Because they were the only contradictors and because they had a direct and substantial interest in the outcome of the Hewsons' application, I am of the view that the interveners would have been justified in thinking that, if they succeeded in persuading the Court not to grant the relief sought by the Hewsons, they ought to get the benefit of an order for costs in their favour. 32 The Hewsons resist the interveners' claim for costs and submit that there should be no order as to costs. They contend that: (a) The primary ground upon which the Court decided the matter against the Hewsons was not relied upon by those opposing relief and had been conceded by them in favour of the Hewsons; (b) By way of amplification of subpar (a) above, it was submitted that I had decided not to accept and thus apply the observations of Santow J made by his Honour at [39] and [43] of Re New Cap, his Honour being an experienced corporations law judge who had expressed views in relation to national legislation the correctness of which had not been challenged by those opposing the relief sought. This could not have reasonably been anticipated by the Hewsons. 33 As I have already mentioned (at [19]-[21] above), I did decide that s 596F(1)(e) was not engaged in the circumstances of this case and thus proceeded upon a basis which was not advanced by the interveners. Nonetheless, had s 596F(1)(e) been engaged, the discretionary factors upon which I ultimately relied in order to refuse access would have inevitably led to a refusal to make any direction under that subsection in favour of the Hewsons. Further, had s 596F(1)(e) been engaged, other matters raised by the interveners would have been weighed in the balance against granting access. As I endeavoured to make clear at [59]-[60] of the principal judgment, the result would have been the same even if I had considered s 596F(1)(e) to have been engaged. 34 Here, although the interveners chose to participate in the Hewsons' application as non-party interveners and thereby put themselves in the best position to resist an order for costs against them, had the Hewsons succeeded in that application, I cannot ignore the circumstance that the interveners were the only contradictors and that they performed that function appropriately. Had they not participated as they did, the Court may well have had to require ASIC to appear and to act as contradictor. It would have been wholly undesirable for the Hewsons' application to have proceeded unopposed. 35 For the above reasons, I think that the interveners would have been justified in expecting an award of costs in their favour in the event that they successfully resisted the Hewsons' application. The case is closest to the facts in Re HIH Casualty. In that case, after considering the contribution made by the non-parties (at [12]-[14]), Barrett J made orders in favour of the interveners to the extent of one-half of their costs. His Honour did not make an order covering all of the interveners' costs because he considered that, in that case, there had been some unproductive duplication of effort as between groups of interveners. In the present case, I do not think that the two groups of interveners were in precisely the same position. For this reason, although there were some features of their respective positions which they enjoyed in common, there were other features peculiar to each particular grouping. The most obvious of these was the initial uncertainty as to whether Messrs Lennox and Lewis would ever be sued and then the clarification that they were not going to be sued. 36 Because the Receivers did not participate at all in the present contest, there should be no order as to costs as between the Hewsons and the Receivers. 37 There will be orders accordingly. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

Hewson v Gothard; In the Matter of Allco Finance Group Ltd

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Cases Cited (11)