Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd; School Holdings Pty Ltd v Dayroll Pty Ltd

Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 Hearne v Street [2008] HCA 36; (2008) 248 ALR 609 CASES CITED : Jago v District Court of New South Wales (1989] HCA 46; (1989) 168 CLR 23 Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756 Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509

(1) Lemery Holdings Pty Limited - Plaintiff Reliance Financial Services Pty Limited - Defendant Reliance Financial Services NSW Pty Limited - Applicant Reliance Financial Services Pty Limited - First Respondent PARTIES : Max Christopher Donnelly in his capacity as liquidator of Reliance Financial Services Pty Limited - Second Respondent (2) School Holdings Pty Limited - Plaintiff Dayroll Pty Limited - Defendant Dayroll NSW Pty Limited - Applicant Dayroll Pty Limited - First Respondent Max Christopher Donnelly in his capacity as Liquidator of Dayroll Pty Limited - Second Respondent

COUNSEL : Mr D A Allen - Applicants Mr P B Walsh - Respondents

SOLICITORS : Proctor & Associates - Applicant Church & Grace - Respondents

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2445/08 LEMERY HOLDINGS PTY LIMITED v RELIANCE FINANCIAL SERVICES PTY LIMITED 2710/08 SCHOOL HOLDINGS PTY LTD v DAYROLL PTY LIMITED JUDGMENT

1 Pending in each of these separate winding up proceedings, following the making of the winding up order and the appointment of a liquidator, is an interlocutory process filed on 25 July 2008 raising the question whether the particular company in liquidation is or was a trustee and holds or held property on trust. I shall refer to these interlocutory processes as "the principal applications".

2 The companies concerned are Reliance Financial Services Pty Ltd ("Reliance") and Dayroll Pty Ltd ("Dayroll"). The liquidator of each is Mr Donnelly.

3 In connection with the principal applications, subpoenas have been issued upon the application of Reliance and Dayroll at the instigation of Mr Donnelly. The subpoenas are directed to 68 Bathurst Street Pty Ltd ("Bathurst"), a company in respect of which a provisional liquidator has been appointed, and to that provisional liquidator, Mr Moodie. The subpoenas are subpoenas for production. The items required to be produced are a CD on which are recorded numerous telephone conversations to which S P Cassiniti was a party while in prison and a computer hard drive which has on it a large quantity of the client and other records of a public accounting practice carried on by Armstrong Scalasi Holdings Pty Ltd under the name "CAP Accounting". Also covered by the subpoenas is anything taken or extracted from the CD or the hard drive. 4 An application has been made in each proceeding for an order setting aside the subpoenas directed to Bathurst and Mr Moodie and for consequential orders for the protection of information. The applicants are Reliance Financial Services NSW Pty Ltd ("Reliance NSW") in the Reliance matter and Dayroll NSW Pty Ltd ("Dayroll NSW") in the Dayroll matter.

5 Each applicant is a party to the relevant principal application and claims that it is the present trustee of a trust of which the similarly named company in liquidation was formerly the trustee. The applicants have standing under rule 33.4(1) of the Uniform Civil Procedure Rules to make the present applications. 6 The applications of Reliance NSW and Dayroll NSW in respect of the subpoenas were heard by me on 17 October 2008. 7 Before referring to the grounds on which the subpoenas are attacked, I should deal with some factual matters. 8 The CD was produced to this court by the Department of Corrective Services in response to a subpoena. That subpoena was issued on the application of Bathurst in quite separate proceedings in this court to which Bathurst is party. Those proceedings may be referred to as "the Bathurst proceedings". It was accepted, for the purposes of the applications before me, that, in the Bathurst proceedings, the court granted Bathurst access to the CD produced by the Department and that Bathurst, through its provisional liquidator, Mr Moodie, made a copy of the CD and returned the original to the court where it now remains. 9 Mr Bailey, the solicitor acting in the principal applications for Reliance, Dayroll and their liquidator, Mr Donnelly, learned of the existence of the CD from Mr Streeter, the solicitor for Bathurst and Mr Moodie in the Bathurst proceedings. Mr Streeter volunteered to Mr Bailey the information that the CD had been obtained as a result of a subpoena directed to the Department and issued in the Bathurst proceedings. He also told Mr Bailey the general nature of the content of the CD - in essence, conversations between S P Cassiniti, on the one hand, and various persons, on the other, which occurred in the course of telephone calls made by S P Cassiniti from prison and were recorded by the Department (I might add that S P Cassiniti was aware, when the conversations took place, that the Department would record them). Having been informed by Mr Streeter of the existence of the CD (and that Mr Moodie held it - or a copy of it), Mr Bailey approached Mr Moodie's office direct by telephone and obtained confirmation that the CD was held there. 10 The computer hard drive was also subpoenaed by Bathurst in the Bathurst proceedings. The subpoena was directed to Compbiz Pty Ltd, a computer repair company. It was accepted, for the purposes of the applications before me, that Compbiz Pty Ltd had temporary possession of the hard drive for the purpose of carrying out repairs or other work for Armstrong Scalasi, the owner of the hard drive. Furthermore, it appears that when served with the subpoena, Compbiz Pty Ltd was content merely to give the hard drive there and then to the process server, who then delivered it direct to Mr Moodie who continues to have possession of it. 11 In the case of the hard drive also, Mr Streeter alerted Mr Bailey to the fact that it was held by Mr Moodie, as provisional liquidator of Bathurst, and Mr Bailey took steps to obtain confirmation of this direct from Mr Moodie's office. 12 The evidence makes it clear that Mr Bailey, acting for Reliance and Dayroll (and their liquidator, Mr Donnelly), knew, at the time of seeking the issue of the subpoenas now under challenge, that it was the compulsory process of the court in the Bathurst proceedings - in the one case against the Department and in the other against Compbiz Pty Ltd - that had caused the items to be surrendered, following which Mr Moodie came to hold them. I should add that it was accepted, upon argument of the applications before me, that nothing taken from the CD or the hard drive has been put into evidence in the Bathurst proceedings.

13 Mr Bailey did not know of the irregular procedure that had caused the hard drive to be delivered direct to Mr Moodie rather than being produced to the court. But he did know that it was the compulsion exerted by subpoena in the Bathurst proceedings, set in train by Mr Moodie for Bathurst, that had caused the item to be surrendered by the person entitled to possession of it. 14 Reliance NSW and Dayroll NSW, being parties to the principal applications in the proceedings now before me, attack on several grounds the subpoenas issued in these proceedings on the application of Reliance and Dayroll (at the instigation of Mr Donnelly) and addressed to Bathurst and Mr Moodie. It is sufficient to deal comprehensively with the attack based on abuse of process since I am satisfied that, on that ground alone, the subpoenas must be set aside. 15 A person who applies for the issue of a subpoena for production asks the court to exert compulsion upon the person to whom the subpoena is directed. Once served with the subpoena, the person loses his or her right to hold the document or other article required to be produced. That right is overborne by the command of the court. And that command is made for the purposes of due prosecution or defence of the proceedings in which the subpoena is issued. 16 Once a person has produced a document to the court in obedience to a subpoena and the court has allowed a party access to the document, the party granted that benefit by the court comes to occupy a position that was the subject of extensive examination by the High Court in the recent case of Hearne v Street [2008] HCA 36; (2008) 248 ALR 609 to which I was taken by Mr Allen of counsel who appeared for Reliance and Dayroll. I quote from the joint judgment of Hayne J, Heydon J and Crennan J at [96]: "Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence." 17 This, it was said, is in the nature of a rule or principle of law and does not depend on or involve some implied undertaking to the court - although the rule may, in the time honoured way, be called an implied undertaking (there was approval in the joint judgment of an observation to that effect by Hobhouse J in Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756 at 764). 18 Their Honours later (at [109]) considered the position of persons other than someone to whom the court has given access: "The primary person bound by the relevant obligation is the litigant who receives documents or information from the other side pursuant to litigious processes. The implied undertaking also binds others to whom the documents and information are given. For example, expert witnesses, who are not parties, commonly receive such documents and information and are bound by the obligation." 19 There followed express approval of another observation of Hobhouse J in the case already mentioned (at 765): "[A]ny person who knowingly . . . does acts which are inconsistent with the undertaking is himself in contempt and liable to sanctions." 20 The members of the High Court said (at [103]): "[T]he authorities recognise a broader principle by which persons who, knowing that material was generated in legal proceedings, use it for purposes other than those of the proceedings are in contempt of court." 21 In the context with which I am now concerned, Bathurst and Mr Moodie, having obtained access to the CD and been allowed by the court to copy it, became subject to an obligation not to use the copy CD otherwise than for the purposes of the Bathurst proceedings. In the case of the hard drive, there was no grant of access by the court (indeed, there was no production by the subpoenaed person to the court) but Bathurst (in the person of Mr Moodie) came, by irregular means, to have possession of the item to which the compelling force of the subpoena attached. That possession must be of the same quality (and thus attract the same obligation) as possession deriving from a grant of access by the court following production to the court. (I am bound to observe that Bathurst (or Mr Moodie), having received the hard drive direct from Compbiz Pty Ltd, should have put matters in order by delivering it to the court and then making an application for access; and that that is a position that continues). 22 Mr Bailey's evidence shows that Reliance and Dayroll (and their liquidator, Mr Donnelly) were aware of the circumstances that caused Bathurst (and Mr Moodie, its provisional liquidator) to be subject to an obligation not to use either the CD or the hard drive otherwise than for the purpose of the Bathurst proceedings. They should also be taken to have been aware of the nature and scope of that obligation. Reliance and Dayroll nevertheless sought to use the processes of the court in these quite separate proceedings to compel Bathurst and Mr Moodie to produce the two items to the court for the purposes of the principal applications.

23 There was, in my view, a knowing attempt by Reliance and Dayroll to deploy the court's coercion against Bathurst and Mr Moodie in order to force them to make the two items available for purposes that Reliance and Dayroll knew (or, at least, ought to have known) were entirely foreign to the purposes for which Bathurst and Mr Moodie had possession of them. Had Bathurst or Mr Moodie volunteered to make the items available to Reliance and Dayroll to assist them in their pursuit of the principal applications, Bathurst or Mr Moodie would have breached the obligation referred to by members of the High Court in the first of the passages quoted above and rendered itself or himself punishable for contempt of court. It is an abuse to seek, through one process of the court, to compel a person to behave in a way that is inconsistent with an obligation already binding on the person because of another process of the court - at least where the attempt to create a compulsion superior to the existing obligation is not made in a way that allows the court to make an assessment of the competing interests and the requirements of justice generally and an informed decision as to which should predominate.

24 The CD is under the control of the court and the hard drive is constructively so (since, as I have said, Bathurst and Mr Moodie are bound to regularise matters by delivering it to the court). The court's control arose and continues because of and for the purposes of the Bathurst proceedings. If there is to be an attempt by Reliance and Dayroll to use the CD and the hard drive for the quite separate and unrelated purposes of the principal applications in these proceedings (or, at least, to have access to them with that potential use in view), it is to the court, as the custodian of the items, that a relevant request should be made.

25 The Uniform Civil Procedure Rules make specific provision in this respect in rule 33.13 to which Mr Allen referred. It is sufficient to quote sub-rules (1) and (2): "(1) A party who seeks production of a document or thing in the custody of the court or of another court may inform the registrar in writing accordingly, identifying the document or thing.

(2) If the document or thing is in the custody of the court, the registrar must produce the document or thing: (a) in court or to any person authorised to take evidence in the proceeding, as required by the party, or (b) as the court directs." 26 The procedure here is one under which the court itself decides whether access may be had in a particular case and for a particular purpose to a document or thing already in the court's custody. In the ordinary course of events, persons having an interest in the question of access would be heard (or have an opportunity to be heard) upon any application for access: see Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 at [574] - [575].

27 Rule 33.13 reflects an aspect of the court's general jurisdiction to supervise and control its own proceedings. The process reflected by rule 33.13 is the correct procedure to be followed by a litigant in one proceeding who wishes to have access to something produced on subpoena in another proceeding. Reliance and Dayroll, in causing to be issued the subpoenas directed to Bathurst and Mr Moodie, sought to put those persons in a position where they were compelled to produce to the court in these proceedings (in connection with the principal applications) things to which access could not properly be obtained except by resort to the court's supervisory powers (including those under rule 33.13) in the Bathurst proceedings. The subpoenas were thus used for a purpose which, in the particular context, they were not intended to serve. The subpoenas accordingly represent an abuse of process: see the observation of Brennan J in Jago v District Court of New South Wales [1989] HCA 46; (1989) 168 CLR 23 at CLR 47-48 repeated by him in Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at CLR 531.

28 Mr Walsh submitted on behalf of Reliance and Dayroll that the subpoenas should be allowed to stand since, in a practical sense, the outcome, once the question of access following production has been dealt with, will be the same as if rule 33.13 had been followed. I do not accept that submission. The vice in the subpoenas is that they are a process of the court that compels a course of action by Bathurst and Mr Moodie which is contrary to an obligation to which they are already subject by reason of the court's process; and that this conflict has been created without even a request that the court determine that the new compulsion should override the pre-existing obligation, let alone any considered determination that that should be so. This is an important element of the abuse of process to which I have referred. It is not to the point to say that the abuse of process might, in the long run, lead to the same destination as due process under rule 33.13.

29 The conclusion I have reached on the matter of abuse of process makes it unnecessary to consider arguments advanced by Mr Allen in relation to the CD by reference to the Telecommunications (Interception and Access) Act 1979 (Cth). I would nevertheless observe that, if the content of the CD is or includes "information" of the kind with which s 63 of the Act is concerned (and I expressly refrain from expressing any opinion on that), it is by no means clear to me that mere production of the CD to the court in response to a subpoena would contravene, in relation to that "information", the prohibition expressed by the words "communicate to another person, make use of, or make a record of". I am inclined to agree with Mr Walsh that the prohibition would arise for consideration when, after production of the CD to the court, the question of granting access to parties arose. 30 The other orders sought assume that the subpoenas will not be set aside. There is accordingly no need to deal with them. 31 In the result, therefore, the orders are as follows: In proceedings 2445 of 2008: 1. Order that the subpoena addressed to Robert Boyce Moodie of Rodgers Reidy, Chartered Accountants, and filed on 19 August 2008 be set aside. 2. Order that the subpoena addressed to 68 Bathurst Street Pty Ltd (Provisional Liquidator Appointed) and filed on 19 August 2008 be set aside. 3. Order that the respondents under the interlocutory process filed on 4 September 2008 pay the costs of the applicants of and incidental to that interlocutory process. In proceedings 2710 of 2008: 1. Order that the subpoena addressed to Robert Boyce Moodie of Rodgers Reidy, Chartered Accountants, and filed on 19 August 2008 be set aside. 2. Order that the subpoena addressed to 68 Bathurst Street Pty Ltd (Provisional Liquidator Appointed) and filed on 19 August 2008 be set aside. 3. Order that the respondents under the interlocutory process filed on 4 September 2008 pay the costs of the applicants of and incidental to that interlocutory process. **********

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