Hodges v Waters

BETWEEN: WELLINGTON CAPITAL LIMITED (ACN 114 248 458) AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND (ARSN 090 687 577)

JUDGE: PERRAM J DATE OF ORDER: 31 JULY 2013 WHERE MADE: SYDNEY

Review & Production of Hard Copy Documents

1. The solicitors for the Liquidators ('HDY') conduct a preliminary review of the Potential Hard Copy Documents to exclude those folders or bundles that on their face are not responsive to the Subpoenas.
2. HDY review the remaining Potential Hard Copy Documents, if any, to identify documents that are responsive to the Subpoenas.
3. On or before 30 August 2013, the Liquidators: 3.1 advise the solicitors for the first and second respondents (Allens) whether there are any Hard Copy Documents responsive to the Subpoenas; 3.2 produce to the Court the Hard Copy Documents that are responsive to the Subpoenas (if any), together with a list documents over which privilege is claimed, and the basis of that claim.
4. Unless the Court otherwise orders, or the first and second respondents and the Liquidators otherwise agree, completion of the above steps will be sufficient compliance with the Subpoenas in respect of Hard Copy Documents. Electronic Documents
5. Within 10 working days after compliance with order 3, Allens advise HDY whether, and to what extent, the first and second respondents seek production of any further Electronic Documents responsive to the Subpoenas. THE COURT NOTES THAT:
6. The costs of this application will be costs of the Liquidators incurred in complying with the Subpoenas, for the purposes of r 24.22 of the Federal Court Rules 2011 (Cth). "Subpoenas" means the two subpoenas dated 30 October 2012, addressed to: • William John Fletcher and Katherine Elizabeth Barnet in their capacity as liquidators of Octaviar Limited (Rec & Man apptd) (in liq); • William John Fletcher and Katherine Elizabeth Barnet in their capacity as liquidators of Octaviar Administration Pty Ltd (in liq). Other terms have the meaning given in the Affidavit of Sarah Jane Worsfield sworn 24 July 2013. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 324 of 2009

BETWEEN: CHARLES HODGES & MARK HODGES AS TRUSTEES OF THE CHARLES HODGES SUPERANNUATION FUND

JUDGE: PERRAM J DATE: 29 JULY 2013 PLACE: SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 557 of 2013

BETWEEN: WELLINGTON CAPITAL LIMITED (ACN 114 248 458) AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND (ARSN 090 687 577)

JUDGE: PERRAM J DATE OF ORDER: 29 JULY 2013 WHERE MADE: SYDNEY

REASONS FOR JUDGMENT 1 These proceedings, which formerly travelled under the name Mercedes Holdings Pty Limited v Waters, but due to a change in plaintiff, are now known as Hodges v Waters, principally concern efforts by investors in the former MFS Premium Income Fund to recover their losses from the partners of KPMG, a firm of accountants ('KPMG'). 2 On 30 October 2012 subpoenas were issued by KPMG to Mr William Fletcher and Ms Katherine Barnet the liquidators of Octaviar Ltd (receivers and managers appointed) (in liquidation) (ACN 107 863 436) and Octaviar Administration Pty Ltd (in liquidation) (ACN 101 069 390). The volume of documentation to be produced is considerable. The present issue concerns the manner in which that production is to be managed. 3 Ordinarily, the liquidators (or their advisors) would consider the terms of the subpoenas and then, having regard to what they required by way of production, assess the documents in their possession. This assessment would usually involve a consideration of the relevance of each document and, in the case of those documents which were relevant, an assessment of whether any claim for privilege might properly be made or some other basis asserted for resisting inspection by KPMG and the other parties. 4 If this usual course is taken then the effect will be that the liquidators will have to expend a great deal of time and money. To date, the liquidators have spent around $195,000 dealing with the subpoenas and it would appear that they expect to expend somewhere between $93,000 and $300,000 in responding fully. Since KPMG is the party which issued the subpoenas, the Court is empowered to order that it pay the liquidators any reasonable expense incurred by them in answering them: Federal Court Rules 2011 (Cth) r 24.22(1). 5 KPMG submits that the ordinary procedure should be dispensed with in this case because it involves duplication and larger than normal expense. Its point is that once the liquidators' solicitors have examined the documents and worked out which should be produced, its own solicitors will then have to carry out the same task. They ask, rhetorically, would it not make more sense for its solicitors to inspect the documents first? Since they are likely to select a narrower collection of documents (because of their greater acquaintance with the issues in the litigation) this would mean that the quantity of documents to be inspected by the liquidators' solicitors would be reduced (and with it the time and money expended on the task). 6 The proposal of KPMG's solicitors to reduce the cost of dealing with this subpoena is practical and the spirit which motivates it is, with respect, sensible. However, I do not think it is feasible. This is because of the position of documents over which the liquidators may wish to make a claim for legal professional privilege. It is an almost inevitable feature of KPMG's proposal given the sheer number of documents involved that its solicitors would obtain access to documents which could be the proper subject of a claim for privilege by the liquidators. KPMG suggests that it would inspect the documents first tagging the ones to which it wished to have access. The liquidators would then examine the tagged documents and make any claims for privilege which they were advised to make. 7 This would bring KPMG's solicitors into contact with privileged documents of which the liquidators' solicitors would be aware of (because they were tagged as relevant). It would possibly also bring them into contact with a range of privileged materials which the liquidators would never know of because they were not tagged for production. 8 To ameliorate this concern KPMG has suggested that the production not count as a waiver of privilege and that the solicitors involved keep confidential whatever they see which is not ultimately produced. 9 I am doubtful I have the power to direct that an act otherwise constituting a waiver does not constitute one. Leaving that to one side, whilst I do not doubt that KPMG's solicitors would strive in good faith to maintain confidentiality, I do not think this is a practical proposal. Knowledge, once obtained, cannot so easily be willed away. The solicitors involved may find themselves in a position of conflict if they see their own legal team taking a turn they know to be wrong (from having seen privileged documents of the liquidators). The subtle influence of such conflicts even on people acting with the best intentions cannot be underrated. 10 Further, there is also a substantial risk that this arrangement could entitle the liquidators to seek to restrain KPMG's solicitors from acting on the basis that they had seen the liquidators' privileged materials. That problem might be solved by the imposition of a Chinese wall (I do not necessarily suggest that it would) but no such wall was suggested and, in any event, the whole point of the proposal was to involve those with knowledge of the litigation to the document examination process. I am not prepared to run the risk that KPMG's solicitors will be restrained from acting for KPMG by their exposure to privileged documents under this procedure. Their role in this litigation has been substantial and their loss from the proceedings would imperil the hearing date which has been fixed. 11 That is a sufficient reason to refuse the proposal. It is in any event highly unlikely that I have the power to order the liquidators to produce privileged documents to KPMG for inspection. Because the question which arises concerns the position of production of documents through ancillary compulsory process rather than the adduction of evidence it is not governed by Pt 3.10 of the Evidence Act 1995 (Cth), but by the common law. The existence of legal professional privilege is an important common law immunity. Statutory provisions are not interpreted as abrogating legal professional privilege without clear words or necessary implication. 12 It was submitted that the Court's power to make orders of the kind sought by KPMG was to be found in its power to make case management orders. Section 37P of the Federal Court of Australia Act 1976 (Cth) ('the Act') authorises the Court or a judge to give directions 'about the practice and procedure to be followed in relation to the proceeding, or any part of the proceeding' and ss 37M and 37N of the Act create duties to conduct litigation in an efficient fashion. There is nothing in those provisions, however, which would authorise the Court to override legal professional privilege and to suffer one party to show its privileged material to the other's attorneys. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.