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[2021] FCA 1020
Federal Court of Australia
2021-08-18
Mr J, Rares J
Original judgment source is linked above.
THE COURT ORDERS THAT:
RARES J: 1 In this proceeding, the first plaintiff, John Morgan, is the liquidator of Sydney Allen Printers Pty Limited (SAP), the second plaintiff, and was one of the joint liquidators of the now deregistered Sydney Allen Manufacturing Pty Limited (SAM). On 4 February 2021, Mr Morgan and SAP commenced this proceeding. They seek orders that SAM be reinstated under s 601AH(2) of the Corporations Act 2001 (Cth) with effect from the date of its deregistration on 1 June 20218, Mr Morgan be appointed as its liquidator and SAP and SAM be made a pooled group for the purposes of s 579E of the Act (the pooling order). 2 McMillan Investment Holdings Pty Limited, a secured creditor of both companies from early 2015, applied to be and was joined as third defendant on 25 February 2021. On 4 March 2021, McMillan filed and served on Mr Morgan and SAP a notice to produce consisting of 47 paragraphs that sought a vast number of documents. 3 On 6 April 2021, Mr Morgan and SAP filed an interlocutory process that sought orders to set aside numerous paragraphs of the notice to produce. The parties narrowed the issues in dispute so that today only pars 2(h)-(o), 3 and 33 remained in contest. Relevantly, McMillan sought production: in pars 2(h)-(o), of all the affidavits made by Mr Davis, Mr Morgan, their solicitors, any expert working with KordaMentha or any other insolvency firm and all the affidavits and reports, together with annexures and exhibits to those documents, made by or on behalf of any of the defendants in a proceeding that Mr Morgan as liquidator had begun in February 2020, with SAP as second plaintiff, in the Supreme Court of New South Wales (the Supreme Court proceeding); in par 3, of the documents relating to settlement of the Supreme Court proceeding. 4 I ruled at the beginning of the hearing today that par 33 should be narrowed so that Mr Morgan must produce the ledgers on which he based his calculations of the effect of a pooling order in his affidavit sworn on 3 February 2021. Mr Morgan has opposed the production of documents under paragraphs 2(h) to (o) and 3, on the basis that they are not relevant to any issue in this proceeding and are, in effect, fishing.
Background 5 On 7 April 2016, both SAM and SAP went into a creditors voluntary liquidation. Geoffrey Davis and Mr Morgan were appointed joint and several liquidators and McMillan appointed receivers for both companies. 6 On 27 April 2016, a meeting of creditors of SAM occurred. Relevantly, two of the creditors that lodged proofs of debt for that meeting were BJ Ball Pty Limited, claiming almost $680,000 for the sale of paper and other substrates used in printing ink and consumable products, based on a statement of account for the period between 15 January 2016 and 13 April 2016, and Heidelberg Graphic Equipment Limited, claiming about $315,000 based on a statement of account relating to its providing supplies from about November 2015 to April 2016. 7 On 5 April 2018, Mr Davis lodged a deregistration request with the Australian Securities and Investments Commission on behalf of SAM in which he stated that the basis for deregistration was that "there are no funds left in the creditors voluntary liquidation to hold a final meeting and also the affairs of the company are fully wound up". 8 On 5 April 2019, Mr Morgan applied to this Court for an extension of time in which to bring unfair preference and voidable transaction proceedings on behalf of SAP against certain of its creditors. The Court granted an extension to 28 February 2020. Relying on the extension, Mr Morgan and SAP filed the Supreme Court proceeding against, among others, Heidelberg and a company apparently related to, or merged with, BJ Ball, Ball & Doggett Pty Limited. The Supreme Court proceeding claimed as against Heidelberg about $520,000 for the period between 8 October 2015 and 18 March 2016 and as against Ball & Doggett about $1.8 million dollars for the period between 12 October 2015 to 31 March 2016. 9 Each of Ball & Doggett and Heidelberg filed a defence in the Supreme Court proceeding in which it asserted that it was not, at any time, a creditor of SAP, but had been a creditor of SAM. They applied to the Supreme Court for it to determine a separate question as to whether they were creditors of SAP or SAM. 10 At some point in or before late May 2020, Mr Morgan and SAP settled the Supreme Court proceeding. In his report to creditors of SAP prepared for a meeting on 11 May 2021, Mr Morgan recorded that settlement of the preferences had yielded a recovery of about $317,000. 11 In his affidavit of 3 February 2021 in this proceeding, Mr Morgan said that the reinstatement of SAM and the making of a pooling order will benefit both its creditors and those of SAP whereas, without a pooling order, there would be a windfall to the creditors of SAM to the detriment of SAP's creditors, who would not bear much of the costs of litigation. Mr Morgan also said that there was an interconnectedness between the businesses conducted jointly by both companies that gave rise to some uncertainty as to which company was liable to which creditors. For that reason, he said that he had formed the view that a pooling order would be just and equitable. Mr Morgan noted that, because there is some ambiguity surrounding SAM's creditors, some further investigations may be necessary if SAM is reinstated. He also pointed to a likely reduction of costs if a pooling order were made, because it would not be necessary to determine whether creditors were those of one or the other of the two companies. Thus, their claims could be dealt with cognately rather than being rejected by one and accepted or given a similar result by the other. 12 On 7 April 2021, McMillan filed an interlocutory process seeking orders that, first, in the event that SAM were reinstated, Adam Shepard be appointed its liquidator, secondly, an inquiry be held into the external administration of each of SAM and SAP and the conduct of its affairs by Mr Morgan under s 90-10 of the Insolvency Practice Schedule in Sch 2 to the Act and, thirdly, various orders requiring Mr Morgan to provide information and produce documents relating to each administration.
McMillan's submissions 13 McMillan does not oppose the reinstatement of SAM, but with the caveat that Mr Shepard be appointed its liquidator, not Mr Morgan. McMillan opposes the making of a pooling order and says that the documents that are the subject of the disputed paragraphs of the notice to produce have apparent relevance to support its wish to investigate bases for, first its opposition to the relief that Mr Moran and SAP seek (summarised at [11] above) and, secondly, the orders McMillan seeks. 14 In its written submissions which were supported orally today, McMillan argued that it wished to see the documents in the disputed paragraphs to ascertain: whether Mr Morgan and SAP are putting before the Court in the present proceeding a different position to that which they put in the Supreme Court proceeding; why Mr Morgan and SAP commenced the Supreme Court proceeding against companies, such as Ball & Doggett and Heidelberg, which had claimed to have been creditors of SAM in their proofs of debt, not SAP, as confirmed in their defences filed in the Supreme Court proceeding; and the evidence in the Supreme Court proceeding that was filed by Mr Morgan, SAP and the defendants prior to that proceeding being settled. 15 In addition, McMillan's written submissions stated that: the documents sought in pars 2(h)-(o) "must have dealt with matters which are material for the consideration of the Court in this proceeding including the application for pooling orders" (par 23); the submissions and evidence relied on by Ball & Doggett and Heidelberg in their applications in the Supreme Court proceeding for a separate question on whether they were creditors of SAP or SAM "bears on the issues with which the Court is now faced in this proceeding, including whether Mr Morgan is putting before this Court in this application a different position to that which Mr Morgan put before the Supreme Court (par 24); the documents were relevant to whether there should be an inquiry into Mr Morgan's conduct under s 90-10 (par 29); the matters which McMillan seeks to investigate and bring before the court bear on the appropriateness of Mr Morgan's claims for remuneration as liquidator of each of SAP and SAM, particularly in relation to the Supreme Court proceeding (par 33). 16 McMillan contended (uncontroversially) that the effect of a notice to produce, such as the present one filed in accordance with r 30.28 of the Federal Court Rules 2011, is that the party served must produce the documents sought without the need for subpoena for production. It submitted that, if Mr Morgan and SAP produce the documents, the affidavits and other evidence in the Supreme Court proceeding under the notice, that would be production under compulsory process and that, accordingly, no issue would arise under the implied undertaking (often referred to as the "Harman undertaking" after Harman v Secretary of State for the Home Office [1983] 1 AC 280) not to use documents produced under compulsion in one proceeding in another proceeding without the leave of the court in which the documents were filed or brought into existence: see Hearne v Street (2008) 235 CLR 125 at 154-155 [96] per Hayne, Heydon and Crennan JJ. 17 McMillan asserted that the documents in the disputed paragraphs are relevant to the statements Mr Morgan made in his affidavit in support of the primary relief in the proceeding, summarised at [#11] above. McMillan argued it would be better able to test Mr Morgan's assertions by having access to the documents sought. It contended that the documents to settle the Supreme Court proceeding also would be relevant to this issue, because they may determine what claims are still able to be made by or against any of the creditors whose claims were settled, including JB Ball or Ball & Doggett and Heidelberg, being the major creditors. Each of those companies had some security over SAM's assets, according to the liquidators' initial report for the meeting on 27 April 2016. 18 McMillan submitted that its interests, as a major creditor of both SAP and SAM, now, relevantly, unsecured, would be affected by a pooling order and that s 579E(10) provides that the Court must not make the pooling order if a creditor in its position is materially disadvantaged. Since at the moment there are no assets in SAM, absent any recovery, and the only assets appear to be available in SAP, there may be some material disadvantage to McMillan if both companies are made the subject of a pooling order. 19 McMillan's solicitors wrote to the defendants in the Supreme Court proceeding seeking their consent to production in this proceeding of the evidence they had filed in the former proceeding. A number of those defendants responded that they neither consented to, nor opposed, Mr Morgan or SAP producing that evidence.
Consideration 20 The principles on which both a notice to produce, that has the effect of a subpoena, and a subpoena should be set aside are well settled. So, too, is the application of the Harman undertaking. 21 In Hearne 235 CLR at 154-155 [96] and 158-159 [107], Hayne, Heydon and Crennan JJ said: 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. The types of material disclosed to which this principle applies include documents inspected after discovery, answers to interrogatories, documents produced on subpoena, documents produced for the purposes of taxation of costs, documents produced pursuant to a direction from an arbitrator, documents seized pursuant to an Anton Piller order, witness statements served pursuant to a judicial direction and affidavits. … The expression "implied undertaking" is thus merely a formula through which the law ensures that there is not placed upon litigants, who in giving discovery are suffering "a very serious invasion of the privacy and confidentiality of [their] affairs", any burden which is "harsher or more oppressive … than is strictly required for the purpose of securing that justice is done". (citations omitted) 22 In Cadbury Schweppes Pty Limited v Amcor Limited [2008] FCA 398 at [13], Gordon J held that the implied undertaking given in one proceeding would not prevent a subpoena for production of those documents being answered in another proceeding. She cited what Mason CJ had said, with the agreement of McHugh and Dawson JJ, in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 33, namely: No doubt the implied obligation must yield to inconsistent statutory provisions and to the requirements of curial process in other litigation, eg discovery and inspection, but that circumstance is not a reason for denying the existence of the implied obligation. 23 In Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (No 2) [2019] FCA 2087, I discussed the principles for setting aside subpoenas (at [11] and [15]): In Associated Dominions Assurance Society Pty Limited v John Fairfax and Sons Pty Limited (1952) 72 WN (NSW) 250 at 254 Owen J, with the agreement of Street CJ and Herron J, explained the concept of the expressions "fishing" and or a "fishing expedition". Owen J said that fishing for the purposes of discovery and interrogatories involved a party seeking to make out a case of which the party was "altogether ignorant". He cited with approval what Lord Esher MR said in Hennessy v Wright [No 2] (1888) 24 QBD 445 at 448: The moment it appears that questions are asked and answers insisted upon in order to enable the party to see if he can find a case, either of complaint or defence, of which at present he knows nothing, and which will be a different case from that which he now makes, the rule against "fishing" interrogatories applies. (emphasis added) … In Gloucester Shire Council v Fitch Ratings, Inc [2016] FCA 587 at [22]-[24], Wigney J discussed the authorities, when considering whether to set aside a notice to produce addressed to the respondent and a subpoena addressed to a bank. He concluded that the common theme of the various expressions of the applicable test of relevance, in the context of a challenge to a subpoena or notice to produce, was of a less stringent test than the test of relevance when considering the admissibility of evidence. His Honour considered that, because the proceeding before him was at a very early stage and the issues had not been clearly defined, the question of whether documents sought by subpoena had apparent relevance ought not be approached too narrowly or rigidly, having regard to the interest that there be a fair trial of the proceeding on the footing that all relevant documentary evidence would be available. Wigney J held (at [24]): A subpoena also cannot be used for the purposes of "fishing" or conducting a "fishing expedition". A finding of "fishing" amounts to a finding that the subpoena has no legitimate forensic purpose because the documents are sought to discover if the issuing party has a case, not to support a case that has already been articulated: Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 575. A finding of "fishing" also appears to involve a question of oppression. 24 McMillan seeks the documents in pars 2(h)-(o) and 3 are for the purpose of it investigating if there is some basis on which it can oppose the relief sought by Mr Morgan and SAP in having the reinstatement and the pooling order. McMillan has framed those paragraphs also with an eye on its interlocutory process for an inquiry under s 90-10 into Mr Morgan's conduct. 25 In my opinion, the evidence in the Supreme Court proceeding and the settlement documentation for which McMillan seeks production consist of matters of which, at the moment, McMillan is entirely ignorant. It is not able to say what, if any, outcome will result from production of any of those documents or how that would or could advance its case any more than is revealed in the documents, such as the pleadings in the Supreme Court proceeding, that are already available to McMillan. For example, the defences of Ball & Doggett and Heidelberg suggest that they claimed that they were creditors of SAM, not SAP. 26 Moreover, under s 90-10 there is a two-step process in considering whether there should be an inquiry into the conduct of an external administrator, such as a liquidator. The first step requires the application to demonstrate a sufficient case for an inquiry before the Court will embark on it. 27 I am not satisfied that the documents sought in pars 2(h)-(o) and 3 have apparent relevance for the purposes of the substantive application by Mr Morgan and SAP for the reinstatement of SAM and the pooling order, or any material that McMillan can seek at this time in support of its application for an inquiry under s 90-10.
Conclusion 28 For these reasons, I will set aside pars 2(h)-(o) and 3 of the notice to produce and order McMillan to pay Mr Morgan and SAP's costs in relation to the argument concerning them. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.
Morgan
Sydney Allen Manufacturing Pty Ltd