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[2017] FCA 417
Federal Court of Australia
2017-04-27
Mr J, Gleeson J
Original judgment source is linked above.
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Counsel for the Second Cross-Respondent: Mr R Scruby
Solicitor for the Second Cross-Respondent: Hunt & Hunt Lawyers
Counsel for the Cross-Claimant: The cross-claimant appeared in person
Solicitor for the Third Cross-respondent: Mr J Tyne of Sparke Helmore
ORDERS NSD 1507 of 2016 IN THE MATTER OF MATRIX GROUP LIMITED (IN LIQUIDATION) ACN 061 549 371 AS TRUSTEE FOR THE MATRIX FINANCE GROUP UNIT TRUST BETWEEN: MATRIX GROUP LIMITED (IN LIQUIDATION) ACN 061 549 371 AS TRUSTEE FOR THE MATRIX FINANCE GROUP UNIT TRUST First Plaintiff
SCOTT DARREN PASCOE IN HIS CAPACITY AS LIQUIDATOR OF MATRIX GROUP LIMITED (IN LIQUIDATION) AS TRUSTEE FOR THE MATRIX FINANCE GROUP UNIT TRUST Second Plaintiff
AND: TOM MICHAEL OATES Defendant
AND BETWEEN: TOM MICHAEL OATES Cross-Claimant
AND: MATRIX GROUP LIMITED (IN LIQUIDATION) ACN 061 549 371 AS TRUSTEE FOR THE MATRIX FINANCE GROUP UNIT TRUST (and another named in the Schedule) First Cross-Respondent
JUDGE: GLEESON J DATE OF ORDER: 27 April 2017
GLEESON J 1 This judgment deals with three related applications concerning Mr Oates's desire to inspect books in the possession of the second cross-respondent ("liquidator") of Matrix Group Limited (in liquidation) ("Matrix") as trustee for the Matrix Finance Group Unit Trust ("Trust"). The orders sought are: (1) by Mr Oates, an order that the liquidator make available to Mr Oates all of the books required to be kept by the liquidator under s 531 of the Corporations Act 2001 (Cth) ("Act"); (2) by the liquidator, an order that he not be required to permit Mr Oates to inspect books kept by the liquidator under s 531; (3) by Mr Oates, an order for the inspection of books of Matrix as trustee for the Trust, pursuant to s 486 of the Act and on the basis that he is a creditor and beneficiary of the Trust; and (4) by Mr Oates, an order for the inspection of the insurance policies required to be held by the liquidator pursuant to s 1284 of the Act and held by PPB Advisory in relation to the liquidation of Matrix and the conduct of the liquidator, pursuant to ss 531 of the Act, the common law or otherwise. 2 The liquidator resists Mr Oates' claims for access.
Background facts 3 The liquidator was appointed liquidator of Matrix by this Court on 8 February 2008, on the application of Mr Oates. The winding up was made on the basis of a judgment debt owed by Matrix to Mr Oates in the sum of $200,748.47. 4 Mr Oates is one of Matrix's two creditors, the other being the Australian Taxation Office. 5 Over about four years prior to 1 April 2011, Mr Oates spent considerable time, effort and money pursuing his claims against Matrix. By letter dated 1 April 2011, Mr Oates made an offer of funding to the liquidator. Up to that time, the liquidation had been unfunded. The liquidator and Mr Oates subsequently entered into a funding agreement dated 6 September 2011 ("Oates funding agreement"). 6 On 7 November 2011, the liquidator sent a report to creditors which noted that the liquidator presently retained insufficient funds to pay the costs of the petitioning creditor (Mr Oates) or declare a dividend. The report noted that the liquidator held monies received pursuant to a funding agreement and that the liquidator had entered into a funding agreement to enable the liquidator to continue his investigations into the affairs of Matrix and commence an examination of relevant parties. 7 On 22 November 2011, there was a meeting of creditors of Matrix. The minutes record that Mr Oates attended the meeting by proxy, and that he was the only known creditor. At the meeting, the liquidator's remuneration for the period 8 February 2008 to 3 November 2011 was approved. Future remuneration up to $100,000 plus GST was also approved. 8 In about March and April 2013, Mr Oates provided Glenn Livingstone, an officer of PPB Advisory assisting the liquidator, with approximately 1,944 documents to assist the liquidator with his investigations into the affairs of Matrix. Mr Oates also provided the liquidator with a 31 page document dated 1 May 2013 headed: "This document is provided to the liquidator of Matrix pursuant to his requirement that as a former director I assist him with his enquiries and the imminent examinations". 9 Examinations were conducted in May 2013. 10 On 13 July 2016, there was another meeting of the creditors of Matrix. At that meeting, a funding agreement with Harbour Fund III, LP ("Harbour") was approved. The purpose of the Harbour funding agreement was to enable Matrix and the liquidator to pursue causes of action arising out of or related to breaches of fiduciary duty by former directors of Matrix, including Garrick Hawkins. 11 On 7 September 2016, this proceeding was commenced by an originating process in which the liquidator sought directions under s 479(3) of the Act. Mr Oates was named as a defendant to the proceeding. On 7 October 2016, Mr Oates filed a cross-claim. The cross-respondents are Matrix (against which Mr Oates required leave to proceed), the liquidator and the partners of Kemp Strang. 12 In December 2016, I declined to make an order, sought by the liquidator and opposed by Mr Oates, that the liquidator was justified in entering into the Harbour funding agreement: Matrix Group Ltd (in liq) (Trustee) v Oates, in the matter of Matrix Group Ltd (in liq) (Trustee) [2016] FCA 1487.
Mr Oates' requests to access records 13 By letter dated 10 July 2015, Henry Davis York, lawyers on behalf of Mr Oates, requested documents and information in connection with proceedings then contemplated by the liquidator against Mr Hawkins and others. The request was expressed to be made: … pursuant to the general rule that all significant creditors must be given an opportunity to join in funding recovery claims, the law relating to section 564 of the Corporations Act 2001 and the terms of the Funding Agreement between our respective clients dated 6 September 2011, in particular clauses 7, 9 and 11.2. 14 On 19 August 2016, Mr Oates first requested to inspect "the liquidator's files for the Matrix liquidation" pursuant to s 531. On 5 September 2016, Mr Oates repeated his request. 15 On 7 September 2016, Glenn Livingstone wrote to Mr Oates relevantly: 1. It is open to the Liquidator to make an application for an Order restricting your access to books kept by the Liquidator in relation to the liquidation of Matrix, notwithstanding s 531 (see: Re Addstone Pty Ltd (in Liq); Ex parte Macks). 2. The Liquidator would likely consider it appropriate to make such an application in respect of at least some books, given your various disputes with the Liquidator and the fact that you will become a defendant in proceedings commenced by Matrix and the Liquidator shortly. Obviously the Liquidator would, for example, in all likelihood, take steps to protect client legal privilege wherever applicable. 3. Any such application will result in costs, which may ultimately be unnecessary, being incurred. In the circumstances, I suggest that, if you wish to inspect some or all of the Liquidator's books for the liquidation of Matrix after receiving the Court documents referred to above, you re-state your request, more particularly, having regard to the issues I have raised, and that request can be considered in due course. 16 On 14 September 2016, Mr Oates re-iterated his wish to inspect the files without responding to Mr Livingstone's suggestion that he re-state his request with more particularity. 17 Mr Livingstone responded the same day, by saying that the liquidator would arrange access to inspect "our files which record the Company's transactions". 18 On 15 September 2016, Mr Oates sought all documents that the liquidator was required to keep under s 531, noting that the "supporting regulations are very broad", referring to Grace v Grace (No 5) [2013] NSWSC 601 ("Grace") and contended that the documents required to be kept by the liquidator and made available for inspection extend "far beyond the 'files which record the Company's transactions'". 19 On 20 September 2016, Mr Livingstone informed Mr Oates that the liquidator was not prepared to make available for inspection any privileged and confidential documents. Mr Livingstone said that other files would be collated for Mr Oates' inspection and asked whether there was something particular that Mr Oates sought to inspect, with a view to arranging inspection sooner rather than later. 20 By email dated 21 September 2016, Mr Oates said: Perhaps the best way forward is for you to provide me a list of the various categories of documents that you wish to exclude, such as - "confidential correspondence between liquidator and [solicitor] from [date] to [date] regarding legal advice as to [Y]), so I can understand what you are seeking to carve out. If that list looks reasonable and can be provided to me before I come in to inspect the documents (is this Friday still okay?), I am happy not to press inspection of such 'privileged and confidential' documents at this stage. Otherwise, I am within my rights to press for access to all of the documents you are required to keep under section 531. (emphasis in original)
Mr Oates' cross-claim 21 On 10 March 2017, Mr Oates filed an amended cross-claim. The amended cross-claim makes substantial claims against the liquidator (and the partners of Kemp Strang) and identifies the following issues that Mr Oates wants the Court to resolve: 1. Whether Mr Pascoe's failure to bring or failure to extend the time limit for bringing [claims referred to by Mr Oates as "the Voidable Transactions Claims"] and/or the representations (and/or silence) in relation to those claims amounted to negligence, a breach of fiduciary duty, a breach of trust, a breach of contract, a misrepresentation or misstatement of fact, misleading or deceptive conduct, and/or the tort of deceit. 2. Whether the alleged termination of the Oates Funding Agreement on 15 March 2013 amounted to a breach of duty, a breach of fiduciary trust, a breach of contract, misleading or deceptive conduct, a breach of the rule in Ex parte James, inducement or procurement (by Kemp [Strang]), and/or the tort of deceit. 3. Whether the failure to keep Mr Oates informed, the failure to ensure Mr Oates's entitlements were reflected in dealings (and agreements) with funders, the failure to invite Mr Oates to make offers to fund and the failure to accept Mr Oates's matching offer in 2016 amounted to breaches of contract, breaches of fiduciary duty, misleading or deceptive conduct, and/or unconscionability. 4. Whether Mr Pascoe's and/or Matrix's (and the Lawyers') claimed costs of defending proceedings NSD 299/2012 and NSD 2089/2012 (and Mr Oates's funding thereof) and retention and/or payment of the recoveries of $222,720.69 from those proceedings to Kemp Strang and/or PPB (and/or the failure to pay that recovered sum to Mr Oates) amounted to a breach of trust, a breach of fiduciary duties, a breach of contract, mistaken payments (subject to restitution), unjust enrichment, unconscionable conduct, a void alienation under s37A of the Conveyancing Act and/or a breach of the rule in Ex parte James. 5. Whether claims and/or payments to Kemp Strang of $177,220.69 once the fee cap of $300,000 (plus GST) was reached under the Oates Funding Agreement amounted to a breach of contract, breach of fiduciary duties and/or unconscionable conduct. 6. Whether payments to Blake Dawson Waldron and/or Kemp Strang (and Mr Oates's funding of same) in the absence of court or creditor approved retainers amounted to mistaken payments (subject to restitution) and/or misleading or deceptive (or unconscionable) conduct. 7. Whether Mr Pascoe's, Matrix's and Kemp Strang's failure to check, disclose and seek directions in relation to the terms of the trust of the [Trust] (including the 'termination on liquidation' clause) amounted to a breach of fiduciary duties and/or a breach of trust. 8. Whether Mr Pascoe's conduct justifies an order under section 481 (and/or section 536) of the Corporations Act 2001 (Cth) ordering Mr Pascoe to make good any loss that Matrix has sustained by reason of Mr Pascoe's default, negligence, breach of trust or breach of duty (or for not faithfully performing his duties or not observing the requirements of the Corporations Act 2001 (Cth) or by reason of his misfeasance, neglect or omission). 9. Whether Mr Pascoe's, Matrix's and/or Kemp Strang's conduct justifies exemplary damages. 10. Whether Mr Pascoe's remuneration and disbursements to date, including the sought fixed remuneration of up to $3,500,000 (in addition to his hourly rate fees) represent proper and reasonable amounts, are recoverable from trust assets, are reasonable for the purposes of section 504 and/or would be in breach of the rule in Ex parte James. 11. Whether the (other) orders and declarations sought by Mr Oates ought to be granted. 22 The amount claimed are in excess of $18 million excluding interest. The pleading contains serious allegations against the liquidator personally including deceit and acting with an intention to defraud creditors, and claims exemplary damages.
Relief sought 23 By an application dated 5 October 2016 ("s 531 application"), Mr Oates applied for "[a]n order that the [liquidator] give [Mr Oates]' access to all of the documents the [liquidator] is required to keep under section 531 of the Corporations Act …". 24 On 20 October 2016, the liquidator filed and served an application and supporting affidavit seeking an order that, until further order, he not be required to permit Mr Oates to inspect the books kept by him. 25 On 21 February 2017, Mr Oates filed an interlocutory application ("s 486 application") and a supporting affidavit seeking access to: (1) "company (including trust) documents" under s 486 of the Act; (2) "documents relating to the [Trust] under the common law"; and (3) the insurance policies "required to be held by the [liquidator] as a registered liquidator under section 1248 of the Corporations Act 2001 (Cth), for the period 2008-2007; and … held by PPB Advisory in relation to the liquidation of [Matrix] and/or the conduct of the [liquidator], for the period 2008-2017", together with correspondence relating to those policies.
Liquidator's grounds for opposing access to documents 26 The liquidator's primary basis for opposing access concerned the claims made by Mr Oates against the liquidator by the cross-claim in this proceeding. The liquidator argued that Mr Oates' purpose is to "fish around in an attempt to support or augment the cross-claims that he wishes to bring". The liquidator argued that, if and when leave is given to Mr Oates to pursue his cross-claim, his rights to inspect documents held by the liquidator and Matrix will be the same as the right of any other party in adversarial litigation, that is, such rights as the Rules will afford Mr Oates to obtain documents by subpoenas, notices to produce or discovery. The liquidator contended that to permit inspection now on the basis sought by Mr Oates would be oppressive and would confer an unfair advantage on him in the litigation. 27 In addition, the liquidator submitted that access should be refused where: (1) Mr Oates has or has had access to many of the records of the company and many of the records of the liquidator, including through the liquidator's contested application for directions under s 479(3); (2) the liquidator has no funds (although the liquidation has an asset that the liquidator considers valuable); (3) Mr Oates has refused to confine his request to specific documents or classes of documents; and (4) the amended cross-claim makes it difficult to see how Mr Oates needs more documents to prosecute his claims.
Mr Oates' complaints 28 In his affidavit accompanying his interlocutory application, Mr Oates complains that the liquidator has failed to keep Mr Oates informed about the following matters: (a) his dealings (including meetings) with potential and actual funders, including the ATO, ASIC, PPB (funding arm) and Harbour; (b) his dealings (including meetings) with the "Lawyers" under the Lawyers Terms, including in relation to the engagement (retainer) of those lawyers, his instructions to those lawyers, the change of lawyers and the payment of legal costs; (c) his 'recovery' of legal costs (paid by me) for the successful defence of Mr Hawkins' setting aside application (and appeal) and his allocation of those recoveries to Kemp Strang; (d) his proposed proceedings against Mr Hawkins (et al); and (e) other matters that concern me as funder and creditor. 29 The "Lawyers Terms" is a document referred to in the Oates funding agreement. Mr Oates' complaints are made by reference to provisions of the Oates funding agreement, his rights as a creditor, his repeated requests for information and the "Lawyers Terms". 30 Mr Oates' evidence is that these failures to keep him informed led to the s 531 application. 31 Mr Oates gave evidence that his s 486 application was made as a result of: (a) My belief that the plaintiffs will seek to exclude documents from being inspected by distinguishing between documents of the company, documents of the liquidator and documents of PPB Advisory ("my firm"). The second plaintiff has recently argued that his retainer with Kemp Strang did not require approval under section 477(2B) because it was "an agreement with my firm and not with Matrix" notwithstanding that the retainer dated 4 August 2016 stated that Kemp Strang was "acting for you and Matrix" • I refer to paragraph 12 of the affidavit of Mr Pascoe dated 20 October 2016, which was read at the hearing on 10 November 2016. (b) My belief that the plaintiffs will seek to exclude documents from being inspected based on the plaintiffs' solicitor's assertion in Court on 16 February 2017 that section 531 ought to apply only to books that record "entries or minutes" made by the liquidator.
Purposes for inspection 32 Mr Oates has identified the following eight purposes for which he seeks access to documents: (1) to understand and consider the affairs (and constitution) of Matrix and the Trust prior to liquidation; (2) to understand and consider the affairs (and constitution) of Matrix and the Trust post liquidation; (3) to investigate prima facie breaches by the liquidator; (4) to assist in investigating apparent accounting and reporting irregularities by the liquidator; (5) to assist in determining whether there are good grounds for the proposed claims against Matrix and the liquidator; (6) to assess the economic viability of pursuing claims against Matrix and the liquidator by investigating the insurance maintained by them; (7) to assess whether to join the partners of PPB Advisory; and (8) to assess the prospects of success of potential causes of action by Mr Oates against CCL UK (which is a reference to Consolidated Capital Limited, a company registered in the United Kingdom), Brian Graham, and Williams Hatchman and Keane. 33 Mr Oates submitted that the onus was on the liquidator to demonstrate that he has an improper purpose in seeking access to the documents.
Other considerations 34 The liquidator did not dispute Mr Oates's contention that, as the liquidation is unfunded, his requests for access will not interfere with the prompt realisation of the assets of Matrix or the Trust for the benefit of creditors.
Rights of access to documents 35 In Re Addstone Pty Ltd (in liq); Ex parte Macks (1998) 30 ACSR 177 ("Re Addstone") at 184 to 187, Mansfield J explained the various rights of a creditor or contributory to documents under the Corporations Law, which was established by the Corporations Act 1989 (Cth) and which was in relevantly similar terms to the Act. His Honour considered the scope of s 247A (which entitled a member of a company to apply for an order authorising inspection of the books of the company), s 486 and s 531. At 185, Mansfield J expressed the view that it is "necessary to give each of ss 247A, 486 and 531 [their] exclusive areas of operation to give full and proper effect to their respective terms".
Section 486 36 Section 486 provides: 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. 37 In Re Addstone at 185, Mansfield J said: Section 486 relates to an application made after the winding up of a company, but in relation to the books of the company concerning its affairs, created and maintained up to the time of the liquidation, rather than in relation to the liquidator's books. Section 531 then takes the further step, in the case of the liquidator's books, of providing that they should be generally available, unless the court otherwise orders. 38 In s 486, the "books of the company" means books in the possession of the company at the commencement of the winding up and not books created or retained during the course of the winding up: Hewson v Gothard; Re Allco Finance Group Ltd (rcvrs and mgrs apptd) (In liq) [2014] FCA 320 ("Hewson") at [77], citing Nut Trading Co (Aust) Pty Ltd v KKL (Kangaroo Line) Pty Ltd (1997) 25 ACSR 580 ("Nut Trading Co"). In Hewson, Foster J noted that Santow J in New Cap Reinsurance Corporations Ltd; Gibbons [2001] NSWSC 835 ("New Cap Re") had "added a gloss" to the above observation "by suggesting that copies of records of a company made after the company is placed into liquidation, although being of records which were in existence at the time the company was wound up, would be 'books of the company' within the meaning of s 486 of the Act" (emphasis in original). 39 In Commissioner of Taxation v Warner [2015] FCA 659; (2015) 106 ACSR 670 ("Warner") at [39], Perry J noted that s 486 has two aspects: (1) to vest power in the Court to permit inspection by creditors and contributories; and (2) to preclude any inspection of the company books by creditors and contributories save where, and to the extent, that any such inspection is authorised by an order of the court (IACS Pty Ltd v Australian Flower Exports Pty Ltd (1993) 10 ACSR 769 (Australian Flower Exports) at 771-772 (Rowland J)). 40 At [40], her Honour noted that the power conferred by s 486 is discretionary and empowers the Court to permit inspection where the Court considers it "just", including on conditions. At [42], Perry J concluded: In short, s 486 vests exclusive power in the court in the case of a compulsory winding up to permit the inspection of the company's books by creditors and contributories, so that the court not only determines whether those persons may inspect the company's books, but the conditions on which any such inspection is permitted. By these means, the court can ensure that access by creditors or contributories is not permitted otherwise than in the pursuit of their legitimate interests in the winding up, as opposed to some other agenda. 41 In Lowden v Elliott Harvey Securities Ltd (No 2) [2016] FCA 740, at [4], Edelman J noted that the overriding consideration on an application under s 486 is the interests of justice. At [10], his Honour expressed the view that the function of s 486 is to create a general mechanism by which creditors and contributories can inspect the company books because they have a legitimate interest in the company's affairs. In that case, access was granted to documents that were "books" of the company and which had an apparent relevance to issues pleaded in litigation to which the company had been a party. The proceedings had been discontinued against the company after it went into liquidation. In concluding that it was in the interests of justice to order inspection, Edelman J took into account that the applicants would pay the liquidators' costs of the inspection. 42 Edelman J noted various instances where it has been said that s 486 should not be used to permit a "fishing expedition" for documents, including Warner, Nut Trading Co and IACS Pty Ltd v Australian Flower Exports Pty Ltd (1993) 10 ACSR 769. At [15], Edelman J preferred to express the relevant factor as simply "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". 43 The Court may permit access to a company's documents for the sole purpose of facilitating an action by an individual contributory against a company's directors: Darambazar v Kara Minerals Ltd (in liq), re Kara Minerals Ltd (in liq) [2016] FCA 265 at [17].
Section 531 44 Section 531 of the Act was repealed by the Insolvency Law Reform Act 2016 (Cth) ("ILR Act"), but continues to apply to the records that Mr Oates seeks access to in the present proceedings by virtue of s 1593 of the Act. Section 531 of the Act provides: A liquidator or provisional liquidator must keep proper books in which he or she must cause to be made entries or minutes of proceedings at meetings and of such other matters as are prescribed, and any creditor or contributory may, unless the Court otherwise orders, personally or by an agent inspect them. 45 Regulation 5.6.01 of the Corporations Regulations 2001(Cth) provides: For section 531 of the Act, the prescribed matters are those that are required to give a complete and correct record of the liquidator's or provisional liquidator's administration of the company's affairs. 46 Regulation 5.6.02 provides: The liquidator or provisional liquidator must ensure that the books kept under section 531 of the Act are available at his or her office for inspection in accordance with that section.
Books that may be inspected under s 531 47 In Nut Trading Co, Einstein J considered a creditor's request to inspect documents under s 416 of the Companies (New South Wales) Code ("Companies Code"), which was in relevantly similar terms to s 531. Section 416 was affected by regs 67 and 68 of the Companies (New South Wales) Regulations, which were relevantly similar to regs 5.6.01 and 5.6.02 of the Corporations Regulations. The documents sought included, relevantly, correspondence between lawyers and affidavits. At 605-606, His Honour concluded that the books required to be kept by s 416 and reg 67 did not include those documents. Einstein J concluded that s 416 and reg 67 did not apply to every document which the liquidator creates or which comes into his possession in the course of his liquidation, saying (at 606): Without attempting to exhaustively circumscribe the type of books required to be kept under s 416 and reg 67, several propositions can be made about them. First, they must be books in which the liquidator makes entries. The mere receipt of a document (such as correspondence between lawyers or copies of affidavits) by the liquidator is not an entry made by the liquidator in any normal meaning of the word "entry". At best, the liquidator might file or store correspondence or copies of affidavits; that is not an "entry" made by him. Second, they must be books necessary to record his administration of the company's affairs. While the liquidator has wide powers in his administration, his primary function is to realise the assets of the company, ascertain the debts of the company and distribute the assets to the creditors. In essence what is contemplated in reg 67 are records of an accounting nature. The language "make entries" is redolent of accounting terminology. This view is fortified by comparing reg 67 with s 324B(1)(d), which describes the records required to be kept by a receiver as "such accounting records as correctly record and explain all transactions entered into by him as receiver". A creditor may inspect those records: s 324B(3); in relevantly identical terms to s 416. However, "accounting records" are defined in s 5 as effectively primary accounting records (invoices, receipts etc) and working papers necessary to explain accounts. Arguably s 416 and reg 67 contemplate secondary accounting records (ledgers, cash books etc). 48 In Re Addstone, Mansfield J referred to Einstein J's observations set out above but did not consider their correctness because the parties before his Honour had assumed that s 531 applied to all the records held by the liquidator, whether created by him or received by him in the course of his administration. At 184, Mansfield J distinguished the material available to a creditor or contributory under s 531 with the general availability of such material to a creditor or contributory of a company. His Honour observed that, prior to winding up, a member has no statutory right to inspect the books of a company, except by application for leave under s 247A of the Corporations Law (which was relevantly similar to s 247A of the Act). His Honour noted that there is no provision entitling a creditor to inspect the books of a company equivalent to s 247A. 49 In ASIC v Rich [2005] NSWSC 417; (2005) 191 FLR 385; (2005) 53 ACSR 752 at [268]-[271], in the course of considering the scope of s 1305 of the Act (which concerns the admissibility and evidentiary effect of books kept by a body corporate), Austin J stated: [268] Section 531 obliges a liquidator to keep 'proper books' in which he or she must cause to be made entries or minutes of proceedings at meetings and such other matters as are prescribed, and creditors and contributories have the right to inspect those books unless the court otherwise orders. Regulation 5.6.01 prescribes, as the matters to be recorded, all matters that are required to give a complete and correct record of the liquidator's administration of the company's affairs. Under s 542(1), where a company has been wound up, all books of the company and of liquidator that are relevant to affairs of the company at or subsequent to the commencement of the winding up are, as between the contributories of the company, prima facie evidence of the truth of all matters purporting to be recorded in those books. By s 542(2), once the company has been wound up, the liquidator must retain the books referred to in subsection (1) for a period of 5 years, except in the special circumstances set out in s 542(3). [269] Is it correct to say that, for the purposes of s 1305, documents kept by the liquidators in that capacity are kept by the body corporate to which they have been appointed; and if it is, are they kept by the body corporate 'under a requirement of [the Corporations] Act'? [270] When performing their functions and exercising their powers as such, liquidators occupy the position of agent of the company: A R Keay, McPherson's Law of Company Liquidation, 4th edition, 1999) p 288, and cases there cited. If, therefore, the liquidators take some authorised step in carrying on the business of the company, that step is binding on the company as principal, just as if it had been taken by or on behalf of the company's board of directors prior to commencement of the voluntary administration. It would have been a step taken by the company as principal. [271] In my opinion the same consequences flow when the liquidators take a step in the administration of the affairs of the company, since in doing so they are acting as the company's agent. The liquidators' keeping of reports to creditors prepared by them in their capacity as liquidators or administrators, by retaining them, is conduct by them as agent for the company. It follows that the reports are kept by the body corporate, and therefore those documents are books kept by a body corporate for the purposes of s 1305. Clearly, they are books kept under requirements of the Act, namely the requirements set out above which oblige liquidators to keep and retain such documents. 50 In ASIC v PFS Business Development Group Pty Ltd [2006] VSC 192; (2006) 57 ACSR 553 at [72], Hargrave J applied Austin J's reasoning to reach the following conclusion concerning a provisional liquidator's report: [T]he provisional liquidator's report was one which the liquidators were obliged to keep under s. 531 of the Act. The provisional liquidator's report is one of the prescribed matters under reg 5.6.01 because it is necessary to record the matters referred to in the report in order to give a complete and correct record of the liquidators' administration of the company's affairs. Further, having been prepared, the liquidators' report is a document which the liquidators are required to retain under s. 542(2) of the Act. 51 In Grace, Brereton J made orders for the production for inspection of all books kept by the provisional liquidator within s 531 including reg 5.6.01. At [8], Brereton J rejected the provisional liquidator's complaint that the scope of the request was "arguably oppressive and a fishing expedition" as "entirely misconceived" where s 531 provides a right of access to the documents of the class it describes. Concerning the scope of the documents required to be produced, his Honour said: I have not been asked on the present application to resolve the apparent dispute as to whether the notes of certain meetings between the provisional liquidator and Mr Grace fall within s 531 or Reg 5.6.01, and I shall not finally do so, but I would observe, in the hope that it might avoid further disputation, that those notes would seem to be of meetings which formed part of the provisional liquidator's administration of the company in question and prima facie it is difficult to see why they would not therefore be necessary to give a complete and correct account of that administration within the meaning of Reg 5.6.01. 52 The request for inspection explicitly sought "all the books and records relating to entries or meetings [sic - minutes?] of proceedings at meetings with anyone connected with the administration of the affairs of [the relevant company]". The provisional liquidator contended that s 531 did not extend to meetings of this type. 53 Mr Oates submitted that the "books" under s 486 and s 531 should include all the books required to be kept under s 542 of the Act. Section 542 was repealed by the ILR Act, but applied prior to 1 March 2017. It provided: (1) Where a company is being wound up, all books of the company and of the liquidator that are relevant to affairs of the company at or subsequent to the commencement of the winding up of the company are, as between the contributories of the company, prima facie evidence of the truth of all matters purporting to be recorded in those books. (2) If a company has been wound up, the liquidator must retain the books referred to in subsection (1) for a period of 5 years from the date of deregistration of the company and, subject to section 262A of the Income Tax Assessment Act 1936, may, at the end of that period, destroy them. (3) Despite subsection (2) but subject to subsection (4), when a company has been wound up, the books referred to in subsection (1) may be destroyed within a period of 5 years after the deregistration of the company: (a) in the case of a winding up by the Court - in accordance with the directions of the Court given pursuant to an application of which at least 14 days notice has been given to ASIC; and (b) in the case of a members' voluntary winding up - as the company by resolution directs; and (c) in the case of a creditors' voluntary winding up - as the committee of inspection directs, or, if there is no such committee, as the creditors of the company by resolution direct. (4) The liquidator is not entitled to destroy books as mentioned in paragraph (3)(b) or (c) unless ASIC consents to the destruction of those books. 54 Since 1 March 2017, the obligations of administrators of companies to keep "books" of the company have been governed by Division 70, Subdivision C of Schedule 2 to the Act. 55 Section 70-35(1) of Schedule 2 to the Act, read with s 1596 of the Act, places an obligation on liquidators analogous to the old s 542(2), as follows: Retention period for books (1) The last external administrator of a company must retain all books of the company, and of the external administration of the company, that: (a) are relevant to affairs of the company; and (b) are in the external administrator's possession or control at the end of the external administration; for a period (the retention period) of 5 years from the end of the external administration. … 56 I do not accept Mr Oates' submission. Section 542 and s 70-35(1) concern the retention of books of the company and the liquidator that are relevant to the affairs of the company. "Books" is broadly defined by s 9 of the Act. Like s 542 and s 70-35(1), s 486 is concerned with the "books of the company". In contrast, s 531 (and the provision that has replaced it) imposes an obligation to "keep proper books" in which entries or minutes must be caused to be made. The books required to be retained under s 542 and s 70-35(1) extend beyond the "proper books" that the liquidator is required to keep to include all "books" of the liquidator that are relevant to the affairs of the company. 57 Mr Oates argued that it could not have been the legislative intent that records "created, copied or received by the liquidator after the date of winding up" are not caught by s 531. The rationale for that argument was not stated, except to say that if this were the case, the liquidator's copies of the Oates funding agreement, the Harbour funding agreement and certain letters of intent would not be available for inspection by a creditor of the company under s 531. This observation does not provide a basis for concluding that all records of the liquidator are caught by s 531. 58 As explained by Mansfield J in Re Addstone, the Act contains a detailed scheme for the availability of books for inspection which is affected by the status of the person seeking inspection and the stage in the life of the corporation when inspection is sought. In my view, there is no reason why s 531 should not be given its ordinary and natural meaning by which, unless the Court otherwise orders, a creditor such as Mr Oates may inspect the "proper books" kept by the liquidator, being the books containing "entries" or "minutes" of proceedings at meetings and of those matters that are required to give a complete and correct record of the liquidator's administration of the affairs of Matrix.
Insurance policies 59 In support of Mr Oates' contention that the statutory insurance required to be maintained by the liquidator in relation to the liquidation of Matrix falls within the books required to be kept under s 531, Mr Oates referred to decisions concerning the scope of s 247A of the Act in which it was held that "books" relevantly included any directors and officers insurance policies held by a company: Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; (2009) 255 ALR 63 (at [73]) and Snelgrove v Great Southern Managers Australia Ltd (in liq) (rcvr and mgr apptd) [2010] WASC 51 ("Snelgrove") at [67]. 60 Those cases were not concerned with s 531. There is no reason to think that such policies form part of the books required to be kept to give a complete and correct record of the liquidator's administration of the company's affairs. Further, even assuming that the books required to be kept include all of the books of the liquidator that are relevant to the affairs of the company, I do not accept that the liquidator's insurance policies are relevant to the affairs of the company. 61 Accordingly, I am not satisfied that Mr Oates has an entitlement to inspect the liquidator's insurance policies under s 531. Mr Oates did not develop an argument that there was any other basis for his claimed entitlement to inspect the insurance policies and I am not satisfied that there is any such basis.
Privileged documents 62 The liquidator submitted, and I accept, that s 531 does not require the production of documents that are protected by privilege: cf Daniels Corporation International Pty Ltd v ACCC [2002] HCA 49; (2002) 213 CLR 543 at [11].
Discretion to prevent inspect of books of liquidator 63 In Grace at [8], Brereton J expressed the view that the right of access conferred by s 531 is not dependent upon the relevance of the documents sought to any issue, so that it was misconceived for the provisional liquidator in that case to contend that of a request for access to documents under s 531 was "arguably oppressive and a fishing expedition". 64 However, in Nut Trading Co, Einstein J refused to permit inspection by a creditor under s 416 of the Companies Code where the creditor's primary purpose was to obtain documents to support an application for an audit of the conduct of the liquidation, His Honour said, at 606: Whatever be the touchstone for refusing to allow a creditor to inspect the books maintained by the liquidator, it would not be permissible if the creditor or contributory seeks simply to go on a fishing expedition in an endeavour to turn up some material which might support a claim to have the liquidation reviewed ... Were it otherwise, any disgruntled creditor or contributory would be permitted to trawl through a liquidator's documents in the hope that he might discover some damning material. 65 At 618, Einstein J found that the suggestion of default by the liquidator lacked substance; the creditor's allegations had already been exhaustively reviewed; his Honour was not satisfied that there was utility in allowing inspection, and he found that the liquidator would be prejudiced where he was unfunded. 66 In Re Addstone, at 186, Mansfield J referred with approval to the statement of Einstein J set out above. Mansfield J described the Court's power under s 531 as follows: In my view, having regard to the legislative structure noted above defining the circumstances in which a member or creditor of a company is entitled to inspect documents, the power to deprive a member or creditor from inspecting books kept by a liquidator must be exercised in the interests of justice in all the circumstances. The starting point for such consideration will be the liquidator's reasons for seeking the order, as the initiative for invoking the power must come from the liquidator. Beyond that, I do not think that s 531 imposes any particular onus upon the liquidator. It is a discretion to be exercised without any particular legal or evidentiary onus. Once the application is made, and there is a sound reason for it, it will be appropriate to consider the purpose for which the inspection is sought. If there is sound reason for the liquidator's concern, and the creditor or contributory does not explain cogently the purpose for which inspection is sought, the application for an order not to permit access to the documents is likely to succeed. Most commonly, I suspect, those two considerations will lead to the need to balance the respective interests of the liquidator in pursuing the prompt realisation of the assets of the company for the benefit of creditors and members and of the creditor or member in procuring access to the documents. There is likely then to be a number of factors to be weighed in the balance in making that judgment. It is neither appropriate nor possible to endeavour to list all potentially relevant factors. They will differ in each case. 67 In Re Addstone, the liquidator's application to refuse access was rejected. The purpose for which the documents were sought was to participate in the process of the Court determining the liquidator's remuneration. Mansfield J was not satisfied that the costs and expenses of the liquidator complying with s 531 would be "of great moment"; nor that the production of the liquidator's books relating to his remuneration as claimed would be unduly burdensome or time consuming; nor would production interfere with the conduct of the administration.
Access pursuant to rights of beneficiary of trust 68 Mr Oates referred to the decision in McNeill v Hearing & Balance Centre Pty Ltd [2007] NSWSC 942 ("McNeill"). In that case, Hammerschlag J allowed an application by a unitholder in a unit trust for access to the trust's records, where no basis had been put why the unitholder should not be entitled to access to the records of the trust. His Honour also granted inspection of the books and records of the trustee company pursuant to s 247A of the Act. 69 The liquidator accepted that a beneficiary of the Trust would, if and to the extent that the Trust was a fixed and not a discretionary trust, have a right to inspect any property forming part of the trust estate. The liquidator submitted that the relevant documents do not include documents which may be used by the trustee in relation to trust business but which are the property of the trustee, citing Heydon JD and Leeming HJ, Jacobs' Law of Trusts, (8th ed, LexisNexis, 2016) at [17-16]. 70 The liquidator submitted: 20. Mr Oates' application as a trust beneficiary fails at the threshold. If he wishes to assert his right as a beneficiary of the Matrix unit trust to inspect trust documents, he needs at the very least to identify the documents that he wants to see and establish that he has a proprietary interest in them by reason of being a beneficiary of the Matrix Trust. He has not done either of these things. 21. There is a further point. The better view now is that the entitlement of a beneficiary of a fixed trust to inspect trust documents is discretionary and not absolute: see for example AIT Investment Group Pty Ltd v Markham Property Fund (No 2) Pty Limited [2015] NSWSC 216 at [66] - [74] per Bergin CJ in Eq. For the reasons given above, in relation to the s 531 and s 486 applications, the Court would in the present circumstances exercise its discretion to refuse inspection.
Access under s 486 71 I am not satisfied that I should make an order for inspection of the books of Matrix by Mr Oates for the following reasons: (1) The order sought is unconfined. In effect, Mr Oates seeks inspection of all of the books of Matrix. (2) Mr Oates has not offered to pay the liquidator's costs of providing access to the documents and the liquidator is unfunded. (3) I am not satisfied that the wholesale inspection sought by Mr Oates involves the pursuit of his legitimate interests in the winding up, as opposed to some other agenda. (4) Of the purposes for inspection identified by Mr Oates, only purposes (1) and (8) could be furthered by permitting access to the books of Matrix. As to purpose (1), and particularly having regard to Mr Oates' apparent previous access to books of Matrix, I am not satisfied that there is utility in permitting access for that purpose. As to purpose (8), there is no reason to believe that Mr Oates legitimately requires access to the whole of the books of Matrix in order to assess the prospects of success of potential causes of action. (5) For these reasons, I am not satisfied that it is in the interests of justice to make the order sought by Mr Oates under s 486. 72 In his submissions, Mr Oates suggested that his application was analogous to an application by a shareholder for access to documents under s 247A. He referred to McNeill, in which Hammerschlag J noted that pursuing a reasonable suspicion of breach of duty is a proper purpose for seeking an inspection of a company's records. To the extent that Mr Oates sought to argue that it was a proper purpose to seek inspection to pursue a reasonable suspicion of breach of duty on the part of the liquidator, that argument is not relevant to the application under s 486 in the light of my conclusion that s 486 does not cover books created or retained during the course of the winding up.
Access under s 531 73 In my view, it is in the interests of justice to order that Mr Oates not be entitled to inspect the books required to be kept by the liquidator pursuant to s 531. 74 It would be contrary to the interests of justice to require the inspection of the documents for the apparent purpose of furthering Mr Oates' cross-claim against the liquidator which may include documents that would not be required to be produced in the ordinary course of the litigation. Such inspection may disadvantage the liquidator in the litigation, in which he is defending serious allegations made against him. Conversely, Mr Oates will not be unfairly disadvantaged in the litigation because he will be able to seek access to documents under the Rules. 75 To the extent that Mr Oates has other purposes, such as searching for other matters about which he might wish to complain (and assuming in Mr Oates's favour that s 531 permits inspection for the purpose of making such a search), I am not satisfied that those purposes warrant inspection of the entirety of the books that might otherwise have been inspected under s 531. In the context of Mr Oates' cross-claim against the liquidator, it is not in the interests of justice to permit general access to the books required to be kept under s 531. 76 Thirdly, it is reasonable to assume that the records of the liquidator's administration of the affairs of Matrix include documents created for the purpose of the litigation in these proceedings, which are protected by legal professional privilege or client legal privilege. The liquidation is unfunded and it would be contrary to the interests of justice to require the liquidator to undertake the work required to protect privileged documents and communications for the purpose of permitting inspection of the remaining documents under s 531 in the circumstances of this case.
Access as a beneficiary of the Trust 77 I accept the liquidator's submission that Mr Oates has not proved his proprietary interest in trust documents arising from his position as a holder of units in the Trust: cf. AIT Investment Group Pty Ltd v Markham Property Fund (No 2) Pty Limited [2015] NSWSC 216 at [75]. 78 Even if this were not a sufficient basis to refuse the application, I would refuse Mr Oates's application for access on this basis for the same reasons that I have refused his applications under s 486 and s 531 of the Act.
Conclusion 79 I will make the order sought by the liquidator. 80 Mr Oates' application for the order sought in prayer 3 of the interlocutory application dated 5 October 2016 will be refused. Mr Oates' interlocutory application dated 21 February 2017 will be dismissed. 81 Costs will follow the event. I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.
SCHEDULE OF PARTIES NSD 1507 of 2016 Cross-Respondents Second Cross-Respondent SCOTT DARREN PASCOE IN HIS CAPACITY AS LIQUIDATOR OF MATRIX GROUP LIMITED (IN LIQUIDATION) AS TRUSTEE FOR THE MATRIX FINANCE GROUP UNIT TRUST
Matrix Group Ltd (in liq) (Trustee)
Oates, in the matter of Matrix Group Ltd
[2006] VSC 192
[2010] WASC 51
(2005) 191 FLR 385
(2002) 213 CLR 543
(2009) 255 ALR 63