Lowden v Elliott Harvey Securities Ltd

Federal Court of Australia|2016-06-30|Before: Mr P, Edelman J

Pursuant to sections 511(1)(b) and 486 of the Corporations Act 2001 (Cth), and subject to the following paragraphs of this order, the applicants may, by their servants or agents, inspect and copy those parts of the books by Elliott Harvey Securities Ltd (ACN 089 156 605) (in liquidation) (EHSL) identified in Schedule A to this order, but not those parts of the books identified in Schedule B to this order other than those which the Independent Barrister, under order 7 below, has identified as not being the subject of legal professional privilege.
Upon receiving reasonable compensation from the applicants for doing so, the liquidators of EHSL are to provide copies of the documents identified in Schedule B (the Schedule B documents) to Mr Jeremy Sweeney of counsel (the Independent Barrister).
Upon receiving reasonable compensation from a respondent for doing so, the liquidators of EHSL are to provide copies of the Schedule B documents to that respondent.
Upon receipt of the Schedule B documents, the Independent Barrister is to give notice by email to the applicants and respondents of such receipt.
Within 7 days of receiving such notice, any respondent seeking to claim privilege in any Schedule B document must provide written submissions with respect to that claim to the Independent Barrister and to the applicants.
Within 7 days of receiving such written submissions, the applicants must provide such written submissions in response as they wish to make to the Independent Barrister and the respondents.
Within 21 days of receiving the Schedule B documents, the Independent Barrister is to: (a) determine which, if any, of the claims for privilege made pursuant to this order is well made; and (b) give notice of that determination by email to each of the parties.
The applicants may not: (a) until the determination for which paragraph 7 provides has been made, inspect any of the Schedule B documents; and (b) after that determination, inspect so many of the Schedule B documents as the Independent Barrister has determined to be privileged in the hands of any of the respondents.

Schedule A Box E02350 Item 8 Box E02351 Item 1 Item 2 Item 4 Box E02352 Item 1 Item 2 Item 3 Item 4 Item 5 Item 6 Item 9 Item 11 Box E02353 Item 12 Box E02354 Item 2 Box E02356 Item 4 Item 8 Item 9 Item 10 Item 11 Box E02357 Item 2 Item 5 Item 6 Item 7 Item 8 Item 10 Item 11 Item 12 Item 13 Box E02358 Item 2 Item 4 Item 5 Item 6 Item 7 Item 8 Box E02369 Item 1 Item 2 Item 3 Item 4 Box E02371 Item 5 Item 11 Box E02375 Item 1 Item 2 Item 3 Item 4 Box E02381 Item 9 Box E02382 (mislabelled as E02392) Item 1 Item 7 - Part A EHMS Ltd Item 8 (mislabelled as Item 7) - Part B EHMS Ltd Box E02388 Item 1.4 Item 1.6 Box E02389 Item 4.3 Box E02385 (or E02390) Item 1 Item 6 Item 7 Item 8 Item 9 Box E02391 Item 8 Item 11 Item 12 Box E02392 Item 1 Item 4 Item 11 Box E02394 Item 10 Box E02395 Item 10 Item 12 Item 28 Item 34 Box E02399 Item 2 Item 9

Schedule B Box E02350 Item 8 Box E02351 Item 2 Box E02352 Item 1 Box E02389 Item 4.3 Box E02392 Item 11 Box E02395 Item 34 Box E02399 Item 2

BETWEEN: NORMAN AUGUST ALEX RAYNEL (and others named in the Schedule) First Applicant

AND: KERRIE DAWN GUY (and others named in the Schedule) Third Respondent

JUDGE: EDELMAN J DATE OF ORDER: 30 June 2016

Pursuant to sections 511(1)(b) and 486 of the Corporations Act 2001 (Cth), and subject to the following paragraphs of this order, the applicants may, by their servants or agents, inspect and copy those parts of the books by Elliott Harvey Securities Ltd (ACN 089 156 605) (in liquidation) (EHSL) identified in Schedule A to this order, but not those parts of the books identified in Schedule B to this order other than those which the Independent Barrister, under order 7 below, has identified as not being the subject of legal professional privilege.
Upon receiving reasonable compensation from the applicants for doing so, the liquidators of EHSL are to provide copies of the documents identified in Schedule B (the Schedule B documents) to Mr Jeremy Sweeney of counsel (the Independent Barrister).
Upon receiving reasonable compensation from a respondent for doing so, the liquidators of EHSL are to provide copies of the Schedule B documents to that respondent.
Upon receipt of the Schedule B documents, the Independent Barrister is to give notice by email to the applicants and respondents of such receipt.
Within 7 days of receiving such notice, any respondent seeking to claim privilege in any Schedule B document must provide written submissions with respect to that claim to the Independent Barrister and to the applicants.
Within 7 days of receiving such written submissions, the applicants must provide such written submissions in response as they wish to make to the Independent Barrister and the respondents.
Within 21 days of receiving the Schedule B documents, the Independent Barrister is to: (a) determine which, if any, of the claims for privilege made pursuant to this order is well made; and (b) give notice of that determination by email to each of the parties.
The applicants may not: (a) until the determination for which paragraph 7 provides has been made, inspect any of the Schedule B documents; and (b) after that determination, inspect so many of the Schedule B documents as the Independent Barrister has determined to be privileged in the hands of any of the respondents.
The third respondent pay the applicants' costs of this application to be taxed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Schedule B Box E02350 Item 8 Box E02351 Item 2 Box E02352 Item 1 Box E02389 Item 4.3 Box E02392 Item 11 Box E02395 Item 34 Box E02399 Item 2

Introduction 1 This interlocutory application was brought by the applicants for discovery pursuant to s 486 and s 511(1)(b) of the Corporations Act 2001 (Cth). The applicants sought inspection of documents from Elliott Harvey Securities Limited (in liquidation) (EHSL) which are in possession of the liquidators. EHSL was a party to the proceeding but the action against it was discontinued after it went into liquidation. The applicants agreed to pay the reasonable expenses incurred by the liquidators of EHSL. 2 The liquidators did not oppose the orders sought. Two of the three respondents to the main proceeding, Mr Stella and Mr Birt, also did not oppose the orders sought. Mr Stella, who was represented by counsel, took the sensible approach that unnecessary expense need not be incurred in a lengthy hearing about relevance of the documents. Nor did he require a separate determination of claims to privilege over the documents. His counsel took the efficient and cost effective approach of submitting that he might inspect the documents. His counsel said that any inadvertent disclosure of a privileged document by the liquidators could be remedied by the applicants' solicitors destroying any copy of the document once the privilege was identified: see Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited [2013] HCA 46; (2013) 250 CLR 303. Although Mr Birt did not appear at the hearing of the application today, at previous directions hearings he had taken the same passive role in relation to this application as Mr Stella. 3 The only party who objected to the orders sought was Ms Guy, the third respondent in the main proceeding. As I have explained, Ms Guy was not a party to this application, although she had an interest in the application at least in respect of her claim for privilege. Counsel for the applicants proposed a regime for privilege involving a determination by an independent barrister. Ms Guy properly accepted that this proposal overcame her objections. 4 Ms Guy also raised objections based on relevance. Neither counsel for the applicants nor Ms Guy (who referred to other legal authorities) was aware of any authority in which a third party to an application under s 486 of the Corporations Act had objected to the inspection on the ground that the documents over which inspection was sought were not sufficiently relevant for the purpose for which they were sought. Relevance is not an expressed condition of s 486. The overriding consideration is the interests of justice. Even taking into account the concerns about relevance raised by Ms Guy, I was satisfied that, subject to claims of legal professional privilege, the applicants should be permitted to inspect the books and records of EHSL pursuant to s 511(1)(b) and s 486 of the Corporations Act. Accordingly, I made orders to that effect this morning indicating my reasons in broad outline and explaining that they would be delivered in writing from chambers today. These are those reasons.

Section 486 of the Corporations Act 5 Section 511(1)(b) of the Corporations Act provides that a creditor may apply to the Court to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. Those powers include the powers contained in s 486. 6 Section 486 of the Corporations Act provides: 486 Inspection of books by creditors and contributories The Court may make such order for inspection of the books of the company by creditors and contributories as the Court thinks just, and any books in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise. 7 "Creditor" is not defined. It has its ordinary meaning which is a person to whom a debt is owed by the company. A "contributory" has the meaning given in s 9 of the Corporations Act. It is not in dispute that the applicants have standing to seek orders under s 486. 8 The term "books" is defined in s 9 of the Corporations Act to include (relevantly) (a) a register; (b) any other record of information; (c) financial reports or financial records, however compiled, recorded or stored; and (d) a document. It is not in dispute that the documents over which inspection is sought are "books". 9 There is no bar to using s 486 as a "backdoor" way of obtaining discovery. In Darambazar v Kara Minerals Ltd (in liq), in the matter of Kara Minerals Ltd (in liq) [2016] FCA 265, Gleeson J said at [17] in relation to s 486: I am satisfied that the Court may permit access to a company's documents, even if the only purpose of the access is to facilitate an action by an individual contributory against a company's directors… 10 With respect, this conclusion must be correct. First, s 486 is concerned with a different purpose from r 20.23(1) of the Federal Court Rules. As Perry J explained in Commissioner of Taxation v Warner [2015] FCA 659; (2015) 10 ACSR 670, 680 [41], its function in relation to creditors or contributories of a company in liquidation is to create a general mechanism by which they can inspect the company books because they have a legitimate interest in the company affairs. Simply because the section might overlap with discovery concerns does not mean that restrictions upon discovery should apply to an application under s 486. Secondly, the entitlement under s 486 is different from the entitlement to discovery. The former is an entitlement of a creditor or contributory. The latter is an entitlement of a party or prospective party to litigation. Thirdly, the text of s 486 is not confined by the same restraints as discovery. The order to be made is subject to what "the Court thinks just". 11 Nevertheless, in determining whether an order is just, it is pertinent to consider the purpose for which the order is sought. As I have explained, when a s 486 order is sought by creditors or contributories of a company in liquidation, the purpose of the order is give effect to their legitimate interest in the winding up. In this case, the litigation is intimately connected with the management of the company and the reasons for the winding up of the company. The only reason why the company is no longer a party is because proceedings were discontinued against it after it went into liquidation.

Ms Guy's objections to inspection 12 Ms Guy submitted that an order for inspection will burden the respondents with the task of "trawling through documents" in order to identify those documents over which they claim legal professional privilege. I take this into account. But to give this factor too much weight would be to allow the protection of Ms Guy's privilege to outweigh the right that the applicants otherwise have to inspection. 13 Ms Guy also submitted that many of the documents are not directly relevant. The concern of "direct relevance" is not a condition upon an order under s 486. Indeed, s 486 imposes no relevance requirement at all. However, at least in circumstances in which the reason why the order is sought under s 486 is to facilitate litigation concerning events related to the winding up, I am content to assume that the extent of relevance is a factor to be taken into account in considering whether an order should be made in the interests of justice. 14 The factor of relevance must be considered in light of the fact that if the very same documents could also be sought by subpoena, the interests of justice could hardly favour requiring the applicants to undertake a considerably more expensive process in order to achieve the very same result. The relevance test for a subpoena in the Federal Court is not a high threshold. As the Full Court explained in Wong v Sklavos [2014] FCAFC 120; (2014) 319 ALR 378, 381-382 [12], the party issuing a subpoena must show that the subpoena has a legitimate forensic purpose in relation to the issues in the proceedings. A subpoena may be set aside if it requires the inspection of documents which do not have apparent relevance to the issues arising on the pleadings. Some cases have expressed this in different ways. It has been said that, viewed realistically, the documents sought have a bearing on an issue which is not unreal, fanciful or speculative. And it has been said that the material sought must be reasonably likely to add in some way to the relevant evidence in the case or that it be "on the cards" that the documents sought will materially assist the party at whose request the subpoena has been issued. 15 Ms Guy also submitted that the order for inspection was sought as a "fishing expedition", a term commonly used in the context of opposing discovery or a subpoena. She also submitted that the documents were described in vague and general terms. It has been said that s 486 should not be used to permit a fishing expedition for documents: Commissioner of Taxation v Warner [2015] FCA 659; (2015) 106 ACSR 670, 680 [40] (Perry J); see also Nut Trading Co (Aust) Pty Ltd v KKL (Kangaroo Line) Pty Ltd (1997) 25 ACSR 580, 605 (Einstein J); IACS Pty Ltd v Australian Flower Exports Pty Ltd (1993) 10 ACSR 769, 774 (Rowland J). It is unnecessary to attempt to define a "fishing expedition" for the purposes of this application. I would prefer to express the factor to be considered "in the interests of justice" (or "as the Court thinks just") as simply being the degree of relevance of the documents. The less obviously relevant the documents, the less likely the interests of justice will favour an order under s 486. 16 During the hearing this morning, counsel for the applicants went through each of the categories of documents over which Ms Guy had indicated an objection on the basis of relevance. Each of the categories of documents, except one which was abandoned during the hearing and is not the subject of these orders, has a legitimate forensic purpose as the applicants described below. 17 Box E02353 is a pink manila folder labelled "Harvey Edwards - Personnel containing employee documentation". Mr Edwards was an employee of EHSL and the file may contain comments or correspondence regarding his reasons for leaving the company during an ASIC investigation. 18 Box E02354 is a General Ledger from 1 July 2008 to 30 June 2009. The General Ledger shows the Company's disbursements which are relevant to the matters referred to at page 13 of the Specific Proposal 2007. Although this concerns a period after the loan was advanced, it may shed light on the purpose for which the loan was given. 19 Box E02371 is a green manila folder labelled "EHS/Nerang" described as containing: Audit report 2007, Nerang Legal Services Pty Ltd 2006/2007 financial YTD, Elliot and Harvey Solicitors 2006/2007 financials YTD, Michael Harvey Tax losses year ended June 2006, 2006/2007 financials YTD Elliot Harvey Securities, general Ledger Elliot Harvey Securities 21/5/2007, Profit and Loss April 2007, profit and Loss account 1/6/06 to 31/3/07, PKF letter re review of EH Investment Scheme 31/12/2006, company tax return 2006. 20 These documents show the financial position of EHSL for 2006 and 2007 and whether EHSL and its directors failed to disclose matters to the applicants. Ms Guy also submitted that this folder contains confidential information concerning a company of which she is a director. As I explained during the hearing, the confidential nature of that information can be protected by a regime agreed between the parties if one is necessary in addition to the general law duties imposed on the applicants and their representatives in relation to confidential information. The Court can also make orders to preserve confidentiality in any information if necessary. 21 Box E02391 is a red folder labelled "Elliot Harvey Securities Ltd Advance to Ronbar Enterprises Pty Ltd Amount: $39,500,000.00 Security Packet". It is described as containing: Minutes of credit committee meeting 20 July 2005, Board submission for approval of proposed loan over $1 million specific proposal 21 July 2005, Specific proposal 29 July 2005, checklist, Statement of particular of loan, Certificate as to legal advice, Undertaking to answer requisitions, Variation authorisation, Statutory declaration, disbursement authority, Certificate of Witness, Statement of personal details, investment authority, Deed of loan and guarantee, Amendment, Tri-partite Agreement Epitome of mortgage, Residential valuation and security assessment. 22 This file specifically refers to the loan to Ronbar Enterprises Pty Ltd. Even conduct prior to the time of the relevant loan may well lead to lines of enquiry in cross-examination. 23 Box E02394 is a copy of diary appointment pages for August 2008. It indicates that a diary was kept regarding appointments and may indicate meetings or communications between the directors relevant to the litigation. 24 Box E02395 is a form of transfer of shares "K Dawn Properties" dated 20 April 2010. The file may indicate that a director transferred property at a time when litigation was anticipated. Ms Guy asserted in oral submissions that she was no longer a director of the company at that time. This may be so, and it might diminish the forensic benefit of any information contained within the box, but these would properly be matters for evidence and cross-examination.

Reasons why the orders for inspection are appropriate 25 Ultimately, I consider that it is in the interests of justice to order inspection for five reasons. 26 First, neither Ms Guy nor either of the other two respondents will suffer any substantial prejudice from the inspection. Apart from the time required to identify documents which are privileged, neither will incur costs in relation to the provision of the requested documents other than those documents which they wish to copy to maintain a claim for privilege. Of course, it is open to them to copy the detail by hand of any of those documents to avoid the cost of photocopying if they wish. 27 Secondly, the applicants will pay the costs of the liquidators for the inspection of these documents. 28 Thirdly, although there seems to be a considerable number of "boxes" sought to be inspected, the boxes are, in fact, folders. The applicants' claim for inspection has been confined from a large number of folders. Of course, only those documents that are relevant will be able to be considered at the trial. 29 Fourthly, all of the boxes, by their description, have an apparent relevance to the pleaded issues. Although I have descended to the detail of considering the six boxes which Ms Guy claimed not to be relevant, these were only a small portion of a much larger number of boxes over which there was no dispute about relevance. In other words, even on the "direct relevance" approach taken by Ms Guy, she did not dispute that most of the documents sought for inspection were directly relevant. Allowing inspection of the six additional boxes, even if the relevance were marginal, would add very little additional time, cost, or expense to the process. 30 Fifthly, it is common ground that the legal professional privilege that each of the respondents claims in the information contained in the documents held by the liquidators can be ensured. That privilege is ensured by a regime which was agreed following a previous directions hearing. An independent barrister will consider the respondents' claims for privilege and adjudicate upon them. The documents which are privileged will be identified and the liquidators will not permit inspection of the privileged documents.

Conclusion 31 Subject to privilege, and subject to the applicants paying the costs of EHSL, it is in the interests of justice for discovery to be granted under s 486 of the Corporations Act. 32 It is not in dispute, and I proceed on the basis that, an order for inspection includes a right to copy the documents inspected. This was assumed by Heerey J in W M Scollay & Co (in liq) v South Pacific Energy Trading Pty (in liq) (1996) 21 ACSR 42, 44. Although other provisions of the Corporations Act such as s 198F or s 247A make express reference to "copying" of documents, they do so together with placing limitations on that right. Further, the notion of inspection in modern times can easily involve vast numbers of documents. It would be a surprising interpretation if s 486 were to permit the inspector only to make handwritten notes rather than to copy the document itself. 33 For the reasons which I gave during the hearing, the third respondent, Ms Guy, should pay the applicants' costs of this application to be taxed if not agreed. I certify that the preceding thirty three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman.

SCHEDULE OF PARTIES QUD 254 of 2012 Applicants Third Applicants: JOHN AGIUS AND ROMA AGIUS Fourth Applicant: JENNIFER KAY ARNOT Sixth Applicant: DENISE LORRAINE CASON Seventh Applicant: FREDERICK CASON AND DENISE CASON ATF THE CASON SUPER FUND Eighth Applicant: THERESA JUDITH CLANCY Ninth Applicant: BRIAN LAWRENCE CLANCY AND THERESA JUDITH CLANCY Fourteenth Applicant: NEILL ANDREW DARK Fifteenth Applicant: SHIRLEY DE KROM AND PHILIBERTUS JOHANNES DR KROM Twenty First Applicant: JOHN STANLEY FEARBY AND BERYL JOAN FEARBY Twenty Second Applicant: GARRY JAMES FOWLER AND ALISON KAY FOWLER ATF THE FOWLER SUPERANNUATION FUND Twenty Sixth Applicant: REGINALD FRANCIS HEATH Twenty Eighth Applicant: BARBARA JOY INNES-WALKER Twenty Ninth Applicant: DAVID INNES-WALKER AND BARBARA JOY INNES-WALKER Thirtieth Applicant: JJ & HC THORNTON PTY LTD ACN 000 590 992 Thirty Seventh Applicant: LEWIS MCKENZIE Forty First Applicant: MT GRAVATT CHURCH OF THE NAZARENE TRADING AS CAPALABA COMMUNITY CHURCH OF THE NAZARENE Forty Third Applicant: KONRAD KURT NITZSCHNER Forty Fourth Applicant: CLIFFORD FRANCIS PFEIFFER AND MARGARET PFEIFFER Forty Fifth Applicant: RICHARD POPP Forty Ninth Applicant: NASREEN REZA AND MOATTA REZA Fiftieth Applicant: WANDA JEWEL RIGBY Fifty Fifth Applicant: OLIVE DOROTHY THORNTON Fifty Sixth Applicant: ELISE KYM WARREN Sixty First Applicant: TATSUO YAMAGUCHI Sixty Second Applicant: ERIC WILLIAM HOLLAND Sixty Third Applicant: ZENA ROSE HOLLAND Respondents Third Respondent: KERRIE GUY Fourth Respondent: JEFFREY ANTHONY STELLA Fifth Respondent: GERALD BIRT

QUD 494 of 2013 Applicants Third Applicant: WALTER KENNETH SHAW Fourth Applicant: GWENYTH MAY SHAW Fifth Applicant: NEALE LAWRENCE SHAW Respondents Third Respondent: KERRIE GUY Fourth Respondent: JEFFREY ANTHONY STELLA Fifth Respondent: GERALD BIRT

Corporations Act 2001(Cth)ss 9, 198F, 247A, 486, 511(1)(b)

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