Pegasus Gold v Kilborn Engineering

4 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3135/99 IN THE MATTER OF THE CORPORATIONS LAW AND IN THE MATTER OF PEGASUS GOLD AUSTRALIA PTY LIMITED (subject to Deed of Company Arrangement)

JUDGMENT - on notice of motion relating to order for production

1 The Deed Administrators of Pegasus Gold Australia Pty Ltd (the Pegasus Administrators) are seeking to ascertain details of any insurance policy under which Kilborn Engineering Pacific Pty Ltd (Kilborn) would be entitled to be indemnified against liability under any judgment obtained by the Pegasus Administrators in proceedings in the Federal Court of Australia, brought by them against Kilborn and two other joint venture companies. In particular they are trying to obtain production of any insurance policy held by the parent company of Kilborn which would extend indemnity to Kilborn for such liability. Facts 2 By order for production dated 29 November 1999 issued under SCR Pt 36 r12 Kilborn was ordered to produce documents listed in the schedule to the order before the court on 6 December 1999. The schedule was in part as follows:

SCHEDULE The following documents in the possession, custody or power of Kilborn (including documents stored in electronic form): 1. any notification to any insurer or broker in relation to any claim made by Pegasus Gold Australia Pty Ltd or Pegasus Gold Corporation Inc against Kilborn Engineering Pacific Pty Ltd or the joint venture of Bateman Project Engineering Pty Ltd, Kinhill Pacific Pty Ltd and Kilborn (collectively, BKK) in April and or December 1997; and 2. any communications between the company (or a related company) and any insurer, broker or parent or related company: (a) in response to or relating to such notifications; (b) recording that any insurer has granted or agreed to provide an indemnity (in whole or part) to Kilborn in respect of such claims; or (c) recording that any insurer has declined to grant or provide an indemnity (in whole or part) to Kilborn in respect of such claims; 3. any professional indemnity policy of the type referred to in section 3(iii) of Annexure A, in the name of, or noting the interest of Kilborn, either specifically by name or as a member of a class or group of companies related to SNC-Lavalin Group Inc current during the period at any time during the period from 1 January 1997 to 31 December 1998 under which a claim referred to in paragraph 1 above was or could have been made; and

A copy of Annexure A is attached at the end of this judgment. 3 SNC-Lavalin Group Inc is the parent company if Kilborn. No document has been produced in response to the call under paragraph 3 of the Schedule. The notice of motion presently before the court seeks the following orders: 1. that Kilborn Engineering Pacific Pty Limited ( Kilborn) inform the Court: (a) whether any request has been made by or on behalf of Kilborn to SNC-Lavalin Group Inc or a related company ( the parent ), for the production of documents within paragraph 3 (and any related documents within paragraphs 1 and 2) ( the documents ) of the schedule to the Order for Production of documents that issued against Kilborn on 29 November 1999 ( the Order ), on the basis that Kilborn has a legal entitlement to production of the documents as a third party beneficiary of a relevant insurance policy ( a relevant request ); (b) if so, whether any response has been received; (c) if so, the substance of the response; or (d) if no response has been received, when a response is expected from the parent; 2. alternatively, that Kilborn's lawyers inform the Applicants' lawyers (by letter) of the matters referred to in paragraph 1 by 2.00 p.m. on 17 March 2000; 3. that Kilborn's lawyers inform the Applicants' lawyers (by letter) of the substance of any response referred to in sub paragraph 1(d) above within 24 hours of its receipt; 4. if a relevant request has not been made, that Kilborn forthwith make such a request in writing to the parent requesting a response on or before 20 March 2000 and, at the same time, provide a copy of that request to the Applicants' lawyers; …

The form of request which the applicant seeks should be forwarded pursuant to paragraph 4 of the notice of motion is as follows: Form of request Kilborn has been served with an order of the Supreme Court of New South Wales dated 29 November 1999 requiring it to produce documents within its possession, custody or power including any professional indemnity policy in the name of, or noting the interest of Kilborn, either specifically by name or as a member of a class or group of companies related to SNC-Lavalin Group Inc ("SNC") current at any time during the period from 1 January 1997 to 31 December 1998. A copy of the order is attached. Information provided to Kilborn by SNC's insurance manager suggests that such a policy exists. Kilborn has a legal entitlement as against SNC to be provided with a copy of any such policy (the "policy") arising from the following: a. Kilborn is an insured under the policy. b. Kilborn is entitled to enforce the policy against the insurer. c. Kilborn is unable to protect or exercise its rights under the policy unless it is provided with the policy and related documents. d. SNC (or the company in whose name the policy was taken out) holds the policy (or the rights under it) as a trustee for Kilborn, or as an agent of Kilborn. e. Kilborn is entitled to direct SNC to provide a copy of the policy to Kilborn. f. Similarly, Kilborn is entitled to be provided with notifications and other related communications with the insurer or broker affecting its rights under the policy as called for by paragraphs 1 and 2 of the order. Please provide to Kilborn as soon as possible any documents answering paragraph 3 and any documents relating to such policy or policies under paragraphs 1 and 2 of the attached Order. 4 Counsel for the applicant says:

It is reasonably clear there is a policy held by the Canadian parent under which Kilborn is a beneficiary;

If that is the position then Kilborn has an entitlement to production of the policy or a copy of it: Trident & General Insurance Co Ltd v McNiece Brothers Pty Ltd (1988) 165 CLR 107;

That there is a presumption that the law of Canada is the same as the law of Australia and in fact it is: Fraser River Pile & Dredge v Can-Dive Services Ltd SCC 1999 No. 26415;

That the policy is within the power of Kilborn: Lonrho Ltd v Shell Petroleum Ltd [1980] 1 WLR 627;

There is power to make the order sought under s23 of the Supreme Court Act and under SCR Pt 36 r12 and r17. 5 As I have said in an earlier judgment the Pegasus Administrators seek information as to insurance cover because they want to know whether they would be justified in expending a very large sum of money in the Federal Court proceedings. In other words they want to know whether the verdict which they hope to obtain would be satisfied in such an amount as would justify the continuance of the proceedings. For that reason they are concerned to obtain details of insurances benefiting the defendants in the Federal Court proceedings. No doubt the Canadian parent of Kilborn is anxious that the action against its subsidiary not proceed and therefore is in no way anxious to assist the Pegasus Administrators in their inquiries. 6 Counsel for the applicant relied upon the wording of Pt 36 r16. That rule relates to notices to produce between parties to proceedings. It is not relevant to the order for production issued here under Pt 36 r12. The fact that the word "power" appears in Pt 36 r16 is irrelevant although a substantial part of the argument was addressed to it. Nor I think does it matter that the word "power" appears in the schedule to the order as the schedule can do no more than is allowed by Pt 36 r12. Production under the relevant rule is not akin to discovery. It is far more akin to the requirement of production under subpoena to produce. 7 A company served with a subpoena to produce is required to produce those documents which are in his or its possession or custody but is not required to take steps to bring any document within its control or power: Rochfort v Trade Practices Commission (1982) 153 CLR 134. The cases relied upon by the applicant, namely Lonrho Limited v Shell Petroleum Company Limited; Palmdale Insurance Limited (in liq) v L Grollo & Co Pty Ltd [1987] VR 113; and Linfa Pty Ltd v Citibank Limited [1995] 1 VR 643 are all relevant to discovery rather than production under Pt 36 r12 that production in this case not being between parties to proceedings, but production in support of examinations under the Corporations Law. Section 23 of the Supreme Court Act cannot assist the applicant. 8 This disposes of the matter, but if it did not I consider that the application would fail in any event. There is no evidence of the particular terms of any policy albeit that it can be assumed some policy exists. Accepting for the moment that the principles in Trident apply in Canada, that in itself would not be sufficient to bring the policy within the power of Kilborn. The terms of the policy might contain some provision to the contrary or might make some other law the proper law of the contract of insurance. One does not know. It is clear that Kilborn has not the power to require the actual policy to be produced. The reason for this is that Kilborn does not own it and if it exists other persons have an interest in the policy. The best argument that could be put forward would be an argument that Kilborn had power to require its parent to furnish it with a copy of the policy, it being one of the beneficiaries under the policy and the policy to that extent being held on trust for it. I do not understand how it could be said that the order for production could give rise to a requirement that Kilborn require its parent to produce for it a document not shown to be in existence, namely a copy of the policy assuming its existence. Neither do I understand how the court could make an order requiring Kilborn to inform the court if it had made any request to its parent on the assumed basis that Kilborn had a legal entitlement to production of the policy. That would be a misuse of the production process because it would require disclosure of information rather than production of documents. In the same way the form of request which it is sought the court should order Kilborn to make, requires the court to make an assumption which it is not entitled to make without further evidence as to the rights under the policy which it is sought to have produced. In those circumstances the notice of motion should be dismissed.

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