FEDERAL COURT OF AUSTRALIA

Nicholls (Trustee) v Hertslet [2016] FCA 655

ORDERS

THE COURT ORDERS THAT:

1.    The second respondent pay the applicant’s costs of the interlocutory application as taxed or agreed.

2.    Leave is granted to the applicant to discontinue the part of the application filed on 15 December 2015 brought against the second respondent.

3.    The second respondent pay the applicant’s costs (including reserved costs) of the application filed on 15 December 2015 brought against the second respondent as taxed or agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BROMWICH J:

Introduction

1    The applicant is the trustee in bankruptcy of the bankrupt estate of John Charles Hertslet (the Trustee). The first respondent is the bankrupt, John Charles Hertslet (John). John has no active part to play in the interlocutory proceedings at this stage, although he will be indirectly affected by the outcome.

2    The second respondent, Douglas James Hertslet (Douglas), is the brother of John and the executor of the estate of the late Marjorie Adline Matilda Hertslet, his and John’s deceased mother (the mother). John and Douglas’ late father was John Leo Hertslet (the father).

3    The Trustee sought leave, if it was required, to use documents obtained as a result of a consent order of this Court, and the information thereby derived, for the purposes of proceedings the Trustee has brought against John and Douglas in the Supreme Court of New South Wales. The documents were obtained from Douglas in compliance with the consent order.

4    Leave was sought to relieve the Trustee from what would otherwise be a breach of any implied undertaking derived from the substantive legal obligation imposed on a party to litigation (and to a third party) who obtains documents or information as a result of the compulsory processes of a court not to use them for any other purpose without leave of that court: see Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 at 157 [103], 158 [106] and 154 [96]; see also Harman v Secretary of State for the Home Department [1983] 1 AC 280 (Harman v Home Office).

5    The Trustee subsequently also sought leave to discontinue the substantive proceedings against Douglas in this Court (which are also interlocutory in nature, being styled as seeking interim orders), and an order for costs: see rr 1.33 and 26.12(2)(c) of the Federal Court Rules 2011 (the Rules).

6    Douglas’ case was that the implied undertaking did arise and should be enforced. He opposed the grant of leave to use the documents contrary to the undertaking. Douglas agreed that leave should be granted to the Trustee to discontinue the substantive proceedings brought against him, but argued that should be conditional upon a costs order in his favour.

7    On 6 May 2016 I granted the Trustee leave to use in proceedings 2016/97813 in the Supreme Court of New South Wales (the Supreme Court proceedings) documents obtained as a result of a consent order of this Court. That leave was sought by an interlocutory application filed on 11 April 2016. These reasons explain why I decided that:

(a)    the provision of the documents to the Trustee by Douglas pursuant to this Court’s order was subject to an implied undertaking not to use them, or information thereby derived from them, for any other purpose unless and until they were admitted in evidence, arising from the application of the principles in Hearne v Street and Harman v Home Office;

(b)    leave of this Court was therefore required to use those documents and the information thereby derived for the purposes of the Supreme Court proceedings, including for the purpose of the statement of claim filed in the Supreme Court on 31 March 2016; and

(c)    the Trustee’s interlocutory application for leave should succeed, and be granted nunc pro tunc from 10 February 2016.

8    These reasons also resolve the question of leave to discontinue that part of the application filed on 15 December 2015 by which proceedings were brought by the Trustee against Douglas (the substantive Douglas proceedings), and the question of costs for both the successful interlocutory application and for the discontinuance of the substantive Douglas proceedings.

9    Further, for the reasons that follow, I have also decided that Douglas should pay the Trustee’s costs of:

(a)    the interlocutory application for leave to use the documents and the information thereby derived in the Supreme Court proceedings; and

(b)    the substantive Douglas proceedings.

The deceased and bankrupt estates

10    Pursuant to a will dated 22 October 1959, the father appointed the mother as sole executrix and bequeathed to her the whole of his estate. The father died on 28 June 2008.

11    On 11 December 2009, letters of administration were granted to Douglas in respect of the father’s estate. On 7 March 2013, those letters of administration were revoked by White J in the Supreme Court, and in place, letters of administration were granted to Richard John William d’Apice (the administrator). The father’s estate then comprised assets with an estimated value of about $1.845 million.

12    The background to the appointment of Mr d’Apice as the administrator of the father’s estate appears to have been a dispute between Douglas and John, which culminated in earlier proceedings in the Supreme Court. Douglas says he agreed to retire and be replaced as administrator. The change of administrator was not contested except as to who should assume that role in place of Douglas.

13    While I am not called upon to adjudicate any aspect of the administration of the father’s estate, it seems fair to say that it has not gone well or quickly since the father died in 2008. Costs in excess of $300,000 have apparently been incurred. Both the administrator and Douglas appear to blame John, and John and Douglas also separately criticise the administrator. Where the blame lies is not for me to determine, even if that were possible on the material before me.

14    Pursuant to a will dated 2 April 2013, the mother appointed John and Douglas as executors of her estate and bequeathed the whole of her estate to them, after the payment of her debts, funeral and testamentary expenses, as tenants in common in equal shares.

15    On 11 July 2013, the mother died.

16    On 17 January 2014, Anthony Arnold Cheney and Peter Neil Wilson, former solicitors for John, filed and presented a creditor’s petition against him. The amount in the bankruptcy notice was $92,943.08, necessarily not taking into account any other creditors.

17    One month later, on 17 February 2014, probate on the mother’s estate was granted to Douglas and as a result he became and still is the executor. An inventory of property annexed to Douglas’ affidavit, apparently previously annexed to a prior affidavit sworn 29 November 2013, gives an estimated value for the mother’s estate of $1,851,084, of which nearly all ($1,845,889.15) is her interest in the father’s estate. I infer that this was the value of the mother’s estate for probate purposes. At the time of giving these reasons, the father’s estate had not been fully administered.

18    On 7 March 2014, John was made bankrupt by the making of a sequestration order in the Federal Circuit Court, and the Trustee was appointed the same day. On his bankruptcy, John did not furnish a statement of affairs to the Australian Financial Security Authority. That finally took place earlier this year.

19    It appears that the only assets of any substantial value in John’s bankrupt estate are the house he lives in and the land upon which that house is located at Narromine in country New South Wales (Narromine property), and his entitlement to a 50% share of the mother’s estate.

20    Between 13 May 2014 and about August 2014, Douglas received funds and realised assets on behalf of the mother’s estate.

21    The Trustee is a beneficiary of the mother’s estate by reason of John’s testamentary entitlement, and therefore has a fiduciary relationship with Douglas. Disputes arising out of that fiduciary relationship and the Trustee’s administration of John’s bankrupt estate gave rise to the commencement of the proceedings in this Court by the Trustee against John and Douglas on 15 December 2015.

Proceedings in this Court and in the NSW Supreme Court

22    The dispute between the Trustee and Douglas arises of out of efforts by the Trustee to obtain John’s share of the mother’s estate, with the prospect of enabling John’s bankruptcy to be annulled by reason of such moneys exceeding the debts provable in bankruptcy. This in turn would obviate the need to sell the Narromine property, which is the primary relief sought in the Trustee’s 15 December 2015 application.

23    The Trustee became aware, via a letter from the administrator dated 5 June 2015, that the administrator had made an interim distribution to Douglas as executor of the mother’s estate in cash of $40,000 and in livestock and wool which was understood to have realised $331,561.50. As a result, the Trustee sought accounts of the administration of the mother’s estate from Douglas.

24    On 8 July 2015, a statement of account for the mother’s estate was provided by Douglas via his solicitors to the Trustee’s solicitors. The covering letter referred to an interim distribution to Douglas of $110,000. The letter indicated that Douglas had intended to make a similar interim distribution to the other beneficiary under the will, John, but had not done so because of the need to retain funds for applications he might need to make following correspondence from the administrator of the father’s estate. An offer was made to make an interim distribution to the Trustee in his capacity as beneficiary of $50,000, later raised to $75,000. These offers were rejected, and the Trustee sought the supporting documents for the transactions referred to in the 8 July 2015 statement of account (the source documents). Douglas maintained, and continues to maintain, that the Trustee was not entitled to the source documents. The dispute between the Trustee and Douglas over, inter alia, access to the source documents, was reflected in a series of communications by letter, email and telephone between the solicitors for the Trustee and for Douglas in the second half of 2015.

25    Of particular concern to the Trustee was the abovementioned interim distribution to Douglas, without any corresponding distribution to John’s bankrupt estate. According to an updated 16 March 2016 statement of account, the interim distribution amount was subsequently increased to $140,000.

26    On 15 December 2015, having been unable to persuade Douglas to provide access to the source documents, the Trustee commenced proceedings in this Court against both John and Douglas. While the primary relief sought was against John for possession and sale of the Narromine property, this was expressly stated by the Trustee to be upon the basis that this relief would only be pressed if efforts to pay the creditors of John’s bankrupt estate from John’s share of the mother’s estate failed. In furtherance of the Trustee’s aim of satisfying the bankrupt estate from John’s entitlement to 50% of the mother’s estate, the application sought interim orders that Douglas furnish accounts for the administration of the mother’s estate, including the source documents. That was apparently the sole reason for joining Douglas to the proceedings in this Court.

27    On 3 February 2016, following further communications between the solicitors for the Trustee and for Douglas, consent orders were made by a registrar of this Court, including:

3.    [Douglas] is to furnish to the [Trustee] copies of each invoice, receipt and notice of assessment for each entity in the statement of account for the Deceased Estate of the Late Marjorie Hertslet dated 8 July 2015 in [Douglas’] possession within 14 days.

28    Documents including a substantial number of the source documents and related explanatory documents for the transactions listed in the 8 July 2015 statement of account and in the updated 16 March 2016 statement of account were provided to the Trustee pursuant to that consent order. This took place both directly from Douglas himself and via his solicitors, in three tranches: (1) on 10 February 2016 (under cover of a letter from Douglas himself dated 8 February 2016); (2) on 17 February 2016 (by email) and; (3) on or about 16 March 2016 (under cover of a letter of that date).

29    Included among the third tranche of documents was the updated 16 March 2016 statement of account referred to above which recorded:

(a)    an increase in the total receipts to the mother’s estate to $401,299.45;

(b)    a $29,737.95 increase in the value of the last payment recorded as having been received by Douglas as executor for the sale of cattle from $145,955.07 to $175,693.02 and changing the date of receipt of that increased amount from 30 June 2014 to 5 August 2014;

(c)    an additional ten expenses compared to those listed in the 8 July 2015 statement of account;

(d)    one of the additional ten expenses was for a future payment, being an entry for a 30 March 2016 payment to the Australian Taxation Office (ATO) of $45,363.92 (an accompanying letter from the accountant dated 2 March 2016 refers to the tax liability for the year ended 30 June 2015 being due for payment by 31 March 2016);

(e)    a $30,000 increase in the value of the interim distribution to Douglas from $110,000 to $140,000 (as noted earlier); and

(f)    a reduction in the residual funds in the mother’s estate from $159,180.03 to $78,266.95.

30    These revised figures apparently heightened the Trustee’s concerns about the administration of the mother’s estate by Douglas. According to calculations I have applied to the 16 March 2016 statement of account, just under 87% of the total amount received by Douglas as executor was made up of the following:

(a)    payments made or to be made to the Australian Taxation Office (ATO): $129,929.77 (just over 32%);

(b)    payment or payments made to Douglas by way of interim distribution: $140,000 (almost 35%); and

(c)    funds retained in the account: $78,266.95 (just under 20%).

31    The rest of the money spent, being $53,472.73 (about 13%), is recorded as being for such things as “agent expenses” paid to Douglas, pastoral services, legal fees, bank fees and locksmith fees. Some of those items are considered further below.

32    The Trustee had a number of specific concerns about the way in which Douglas had been administering the mother’s estate. Douglas asserted that those concerns were baseless. It is not necessary for me to try to resolve that dispute, especially as it will be part of the Supreme Court proceedings. Whether in the end result those concerns, or any of the other concerns held by the Trustee, are sufficient to warrant the removal of Douglas as executor of the mother’s estate will be a matter for the Supreme Court to decide.

33    It suffices to identify two of the concerns raised by the Trustee which I consider to be prima facie legitimate. As no satisfactory explanation has been advanced by Douglas about those concerns, no adjudication of a factual dispute is required. Those two concerns were relevant to take into account on the interlocutory leave application to use the source documents provided and information thereby derived in the Supreme Court proceedings. They are also relevant to take into account on the question of whether the substantive Douglas proceedings were properly brought, and on the question of costs for both.

34    The first prima facie legitimate concern is the fact of Douglas making interim distributions to himself while not making any to John’s bankrupt estate, let alone any of a comparable amount, nor even putting the Trustee on prior notice of these distributions, remembering the Trustee is a beneficiary. It was apparently only by chance that the 5 June 2015 letter from the administrator put the Trustee on notice that a distribution to Douglas had taken place: see [23] above. The bare fact of the payment of an interim distribution by Douglas to himself without a corresponding payment, or even notice, to his co-beneficiary, the Trustee, at least gives rise to a possible issue of conflict of interest in Douglas preferring his interests to those of both beneficiaries equally, being him and John. It may also be evidence of maladministration.

35    A second aspect of the first prima facie legitimate concern relates to an apparent reason or purpose for at least part of the interim distribution to Douglas alone. On the affidavit evidence of Douglas, at least $23,000 of the interim distribution of $140,000 to him was used to fund proceedings brought against him apparently in a personal capacity in the New South Wales Civil and Administrative Tribunal (NCAT). Counsel for Douglas was unable to make any submissions to justify an interim distribution for that purpose. There is no explanation for the balance of the $140,000 interim distribution to Douglas, being $117,000. I infer from the language used by Douglas in his affidavit at [22] concerning the interim distribution that he “used the funds for NCAT proceedings” that some, or perhaps even all, of the $117,000 balance may have also been used for part of the expenses or payments associated with the NCAT proceedings. If that was not what the balance of the interim distribution of $117,000 was used for, then there is no explanation for it having taken place at all.

36    There is no satisfactory explanation for the interim distribution taking place in Douglas’ favour without a corresponding distribution to John’s bankrupt estate, and no explanation at all for the lack of notice to the Trustee of this taking place. It is no answer to say, as Douglas did, and as his solicitors did, that some of the remaining balance may now be needed for other purposes, even legitimate purposes, and that Douglas had the right to make interim distributions as he saw fit, provided this was taken into account on the final distribution. The distributions to Douglas alone (and in the amounts involved) may be seen to be at least imprudent. It may be a matter for the Supreme Court to decide whether only equal distributions should have taken place, absent a very good reason to do otherwise. Similarly, the Supreme Court may decide that if there was not enough to provide the same amount to John’s bankrupt estate as Douglas distributed to himself, then less should have been distributed to both beneficiaries.

37    Without a sufficient and timely distribution to John’s bankrupt estate, the Trustee may have no practical alternative but to move on his application in this Court for the possession and sale of the Narromine property where John lives. This is a major reason why John may be affected by these proceedings and by the Supreme Court proceedings. It may be a further reason why the Supreme Court might conclude that Douglas should not have distributed so much of the available funds to himself alone.

38    The second prima facie legitimate concern raised by the Trustee relates to a payment made as an expense of the estate of $1,946, recorded in both statements of account as a payment to “Bernard Dryden” for “Court Expenses – John” on 1 March 2015. Douglas’ affidavit at [18] explains that on 8 January 2015, Narromine Local Court ordered John to pay a fine and expenses for a firearm offence. Mr Dryden, a cousin, paid this sum to the Local Court. Douglas used estate funds to reimburse Mr Dryden.

39    Douglas asserts that the payment of $1,946 to Mr Dryden was not a case of preferring his own interests. That is literally correct, but it plainly was a case of advancing funds to John’s benefit, representing them incorrectly in both statements of account as expenses of the mother’s estate, and in the process preferring a creditor of John outside the constraints of bankruptcy to the detriment of his bankruptcy creditors. The Supreme Court may conclude that those funds should have remained in the mother’s estate, within the pool of funds potentially available to the Trustee as beneficiary via John’s bankrupt estate. There was no acknowledgement or even recognition on the part of Douglas that there was anything untoward about this transaction. That attitude may be just as important in the Supreme Court proceedings as the fact and quantum of the transaction.

The Supreme Court proceedings

40    As noted above, on 31 March 2016, after obtaining the documents from Douglas, and apparently in substantial reliance upon them, the Trustee commenced the Supreme Court proceedings. In those proceedings the Trustee seeks, inter alia, the removal of Douglas as executor of the mother’s estate by reason of alleged maladministration.

41    The Supreme Court proceedings are, on the face of the statement of claim, largely based on the way in which the mother’s estate has been administered by Douglas, as revealed in communications with the administrator’s solicitors, in communications with Douglas’ solicitors, and in the concerns arising from the 8 July 2015 statement of account, the 16 March 2016 statement of account and the source documents (not limited to the prima facie legitimate concerns considered above).

42    I am not in a position to ascertain whether the Trustee’s concerns will likely be reflected in the Trustee successfully establishing the alleged maladministration of the mother’s estate in the Supreme Court proceedings. Indeed, I should not attempt to do so except to the limited extent necessary for determining this application for leave. There is sufficient evidence before me of apparently unsatisfactory transactions detailed above as prima facie legitimate concerns to satisfy me that the Trustee is acting in good faith, and appears to me to have an arguable case to be tried, in bringing the Supreme Court proceedings.

43    The Trustee’s case in the Supreme Court proceedings will doubtless depend on facts to be determined by further evidence and submissions by both parties. Whether in the end result the prima facie legitimate concerns, or any of the other concerns held by the Trustee now or in the immediate future, are made out and shown to be sufficient to warrant the removal of Douglas as executor of the mother’s estate will be a matter for the Supreme Court to decide.

44    The application to remove Douglas as executor of the mother’s estate has been brought in the Supreme Court, rather than this Court, at least in part because Douglas argues against this Court having jurisdiction to determine that dispute. That may well be correct, but I do not need to decide whether that is so. It is sufficient that Douglas maintains that the Supreme Court is the proper forum and does have jurisdiction, such that the Trustee does not have to contend with a preliminary forum dispute by litigating in the Supreme Court rather than this Court.

Objection to use of the documents in the Supreme Court proceedings

45    On 7 April 2016, the day after receiving the statement of claim in the Supreme Court, Douglas’ solicitors wrote and complained about the use of the documents provided by him pursuant to the 3 February 2016 consent order of this Court. The letter referred to Hearne v Street and Harman v Home Office, and demanded:

(a)    that to the extent the statement of claim referred to documents produced by Douglas under compulsion in this Court, the pleadings be withdrawn by the next day; and

(b)    confirmation that the Trustee would not use or in any way rely upon documents produced under compulsion by Douglas in proceedings in this Court in the Supreme Court proceedings.

46    By an interlocutory application dated the next day, 8 April 2016, and filed the next working day, 11 April 2016, the Trustee sought leave of this Court to use the documents obtained in the course of these proceedings in the Supreme Court proceedings.

47    At the hearing of the application on 27 April 2016, I invited the parties to address me on the question of whether, if leave was needed and if I considered it should be granted, it should, or should not be, nunc pro tunc to the point of first receipt of the documents (commencing on 10 February 2016). No compelling argument was advanced on behalf of Douglas for why, if leave was necessary and granted, it should not be granted nunc pro tunc. In my view, there should be no residual uncertainty about what the leave permits. Accordingly, I granted the leave nunc pro tunc from 10 February 2016.

Access to the source documents

48    The Supreme Court proceedings are undoubtedly going to be hotly contested. The Trustee sees the removal of Douglas as executor as being the best or perhaps only way to obtain access to John’s inheritance from the mother’s estate. Douglas sees the application as baseless. As noted above, that is not a question I can or should attempt to resolve. It suffices that there appears to be a serious question to be tried in the Supreme Court, although even that ultimately is also a matter for that Court.

Entitlement to access the source documents

49    Douglas asserts that his consent to the 3 February 2016 order (by which he provided the 16 March 2016 statement of account and source documents) was given as a matter of expedience, and that this Court had no power to make that order. The Trustee asserts that he was entitled to the documents as a beneficiary of the mother’s estate, and that the order did no more than to reflect and vindicate that entitlement. The Trustee’s first argument was that this entitlement meant that the implied undertaking did not arise.

50    The dispute between the parties as to the Trustee’s entitlement to access the source documents comes down to a matter of detail and degree. For the reasons that follow, I do not need to determine what the correct legal position is in light of what has transpired.

51    In substance, Douglas’ position is that the Trustee was not entitled to more than the list of transactions in the 8 July 2015 and 16 March 2016 statements of account, relying on what he contended was the limited scope of s 30 of the Bankruptcy Act 1966 (Cth). It is important to note that: (1) the 16 March 2016 statement of account was not volunteered, but rather came to the Trustee as a result of the 3 February 2016 order; and (2) it contained significant additional information. That updated statement of account contained some important differences from the earlier account, as noted at [29] above.

52    The Trustee’s position at all stages has been that he was, as a beneficiary of the mother’s estate via John’s bankruptcy, entitled not just to a statement of account, but also to have access to the source documents.

53    The Trustee contended that it did not matter whether access to the source documents took place by way of inspection or by way of provision of copies. No argument to the contrary was put by Douglas. I agree that the distinction between access by inspection or by copies is immaterial in the circumstances of this case.

54    The Trustee, in his capacity as a beneficiary to the mother’s estate via John’s bankrupt estate, was either:

(a)    entitled as of right to have access to the source documents, and could therefore seek to enforce that entitlement in a court, as the Trustee contended; or

(b)    required to move a court for orders to have access to the source documents because there was no entitlement to them without a court order, as Douglas contended.

55    Douglas also contended that seeking an order for access to the source documents was a doomed enterprise because the appropriate court, which he asserted was the Supreme Court, would not have ordered access over objection. I am not convinced that such a bold prediction would likely have been vindicated, especially without seeing the process and evidence relied upon, but it is unnecessary for me to decide that hypothetical outcome.

56    Irrespective of who was right, there was a proper basis for the Trustee to bring proceedings in a court against Douglas to seek orders to obtain access to the source documents. Whether the application which was brought would have been successful had it been contested is now moot, because access was obtained without contest and therefore without adjudication. It is not to the point that at least some of the documents might also have been sought by way of a subpoena, as there has not been any suggestion that suing for orders to achieve that objective was an abuse of process, although it is a course of action that Douglas criticises.

57    In any event, as the Trustee pointed out, he did not merely seek access to documents, but required the furnishing of accounts. That could require not just access to extant documents, but, if needs be, the creation of documents in the nature of an account to explain what had taken place in the administration of the mother’s estate. I note in this regard that it appears that the 16 March 2016 statement of account was not apparently in existence as at the date of the 3 February 2016 order, and did constitute an account of the administration of the mother’s estate.

58    The 16 March 2016 statement of account also referred to a payment to the ATO that had not yet taken place, and therefore had a predictive quality, even if that payment may have been certain to take place. A similar observation applies to documents obtained from third parties not being amenable to subpoena, including correspondence brought into existence and provided after the 3 February 2016 consent orders were made. No subpoena could have required bringing such documents into existence.

Appropriate jurisdiction for seeking access to the source documents

59    As noted above, Douglas’ position was that the Trustee was required to move the Supreme Court, rather than this Court, for orders seeking access to the source documents. It was contended that this Court would not have jurisdiction to entertain an application for such an order. I do not need to resolve that jurisdictional question either. The fact is that the action against Douglas was brought in this Court, the substance of the relief sought was ordered to be provided by way of consent orders of this Court, and access (by way of copies) to the documents, including an updated statement of account, was provided. It does not matter that the Trustee initially sought further documents, but later chose not to pursue getting them. Plainly the Trustee considered he had enough to have his concerns brought before a court which had undisputed jurisdiction to address them.

60    It is not necessary to determine the hypothetical question of whether that outcome could or should instead have been achieved, or sought to be achieved, in the Supreme Court rather than in this Court. This Court undoubtedly had jurisdiction to deal with the primary relief sought against John, so the question of the jurisdiction to deal also with the relief sought against Douglas would most likely have been a question of this Court’s accrued jurisdiction. In my view, seeking to deal with the administration of the mother’s estate as a vitally important aspect of dealing with John’s bankrupt estate was a reasonable course for the Trustee to adopt. As I have already observed, it was also a course that was substantially successful.

61    What matters is that voluntary access was sought and refused, proceedings were commenced, and access was thereby obtained. That final position, and how it was arrived at, is an important consideration in determining the existence of the implied undertaking, the grant of leave to depart from such an undertaking, and what costs orders should be made both on the leave application and consequent upon the agreed discontinuance of the substantive Douglas proceedings.

The application of Hearne/Harman v Home Office and the question of leave

62    The suggestion, in the end put somewhat faintly by the Trustee, that the implied undertaking did not arise because of an existing right to access the source documents can be disposed of very shortly. It is irrelevant that the documents might have been obtained by other means, or that there was or may have been an existing right to the documents. The fact that they were obtained as a result of an order of this Court is plainly enough to give rise to the implied undertaking. Nothing more was needed.

63    As the Full Court pointed out in Binetter v BCI Finances Pty Ltd (in liq) [2015] FCAFC 122; (2015) 235 FCR 410 at 418 [31], the implied obligation is owed to the court, there is nothing voluntary about it, and it arises because the documents were provided by reason of the court’s compulsory processes. It does not matter that there was a voluntary submission to that process by the party providing the documents in accordance with a consent order of the Court. Once the consent order was made, compliance was compulsory unless and until the order was set aside. The provision of the documents was automatically subject to the implied undertaking. The Trustee was bound by that undertaking.

64    Justice Wilcox in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 at 225 adopted from prior authority the proposition that the party or person seeking leave to depart from an implied undertaking needed to show “special circumstances”. His Honour considered that the test of “special circumstances” was met if there was a special feature of the case which afforded a reason for modifying or releasing the undertaking that was not usually present.

65    The Full Court in Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 at 289 [31] endorsed the test of “special circumstances”, but held that this test did not require some extraordinary factors to be present. Rather, it was sufficient to say that in all the circumstances good reason had to be shown why, contrary to the usual position, documents produced or information obtained should be used for the advantage of a party in another piece of litigation or other purpose. Their Honours adopted the list of considerations identified by Wilcox J in Springfield Nominees that may be relevant to the exercise of discretion. I list those factors and comment on their application to this case:

(a)    The nature of the documents: the documents are statements of account and source documents to the transactions listed in those statements. There is nothing inherently confidential about them, especially given their transactional nature. However, as noted below, they do reveal matters of concern to the Trustee and are plainly important for the Supreme Court proceedings.

(b)    The circumstances under which the documents came into existence: the documents partly came into existence in the course of the administration of the mother’s estate and partly were produced as a result of the requests of the Trustee. There is nothing about the circumstances in which the documents came into existence that tells against the grant of leave.

(c)    The attitude of the author and any prejudice the author may sustain: Douglas is either the author, or in a like position. He opposes the use of the source documents in the Supreme Court proceedings, but cannot point to prejudice in any relevant sense. I do not regard the contribution of the source documents to the possible success of the Trustee’s application to be the sort of prejudice that is contemplated, or should be contemplated, at least for proceedings of that kind. Supervising and ensuring the proper administration of deceased estates is a legitimate concern of the Supreme Court, just as the proper administration of bankrupt estates is a legitimate concern of this Court. Neither concern is exclusive to either Court, subject to jurisdictional limits. If the attitude of Douglas has any relevance to the exercise of the discretion to grant leave, it carries very little weight in all the circumstances.

(d)    Whether the documents pre-existed litigation or were created for that purpose and therefore expected to enter the public domain: while the documents might not have been expected to enter the public domain, they were brought into existence following the granting of probate by the Supreme Court and are meant to be able to be the subject of appropriate accountability, and when needed, court intervention. It was plain that the documents were being sought by the Trustee because of concerns about how the mother’s estate was being administered (to the possible prejudice of John’s bankrupt estate, and therefore necessarily to the possible prejudice of John’s creditors). It is always a live possibility that such documents may be required in court proceedings if a satisfactory account was not forthcoming, or if other legitimate concerns existed.

(e)    The nature of the information in the documents and in particular whether it contains personal data or commercially sensitive information: that is not a feature of any of these documents except to the extent that financial affairs are inherently personal and may, to that extent, be sensitive, but nothing has been said to indicate such an issue in relation to these documents.

(f)    The circumstances in which the documents came into the hands of the applicant: this is detailed above as to the history leading up to the commencement of the proceedings in this Court against John and Douglas and the pragmatic consent orders made on 3 February 2016. If anything, that history counts in favour of granting leave because it evidences Douglas’ resistance to being made accountable.

(g)    Perhaps most importantly of all, the likely contribution of the documents to achieving justice in the second proceeding: there is little doubt that the documents in their entirety are very important, if not indispensable, for the Supreme Court proceedings. It is not a factor against granting leave that the Trustee might have been forced to obtain them again from Douglas if his application for leave was unsuccessful. Indeed, that feature of losing time is a further reason for granting leave in this case.

66    Douglas’ arguments against the grant of leave largely turned on holding the Trustee to the implied undertaking, and not rewarding him for commencing the proceedings without leave. I did not find those reasons, or any of the other reasons advanced on behalf of Douglas, to be compelling.

67    Weighing up all of the above factors, and placing particular weight on the likely contribution of the documents to achieving justice in the Supreme Court proceedings, I concluded that leave should be granted, and on 6 May 2016 made orders to that effect. While it would have been better and more prudent for the Trustee to seek that leave before commencing the Supreme Court proceedings, I did not consider that was a good enough reason to make that leave only take effect from the date of the order granting leave. The leave was therefore granted nunc pro tunc with effect from 10 February 2016, being the date upon which the first of the documents was provided to the Trustee by Douglas.

68    In light of the opposition to leave being granted post the filing of the statement of claim in the Supreme Court, it seems clear that leave would also have been opposed by Douglas even if this application was brought prior to the commencement of the Supreme Court proceedings. The Trustee quite properly conceded that it would have been more prudent to have applied for leave before the statement of claim was filed, but once objection was taken, the interlocutory application was brought expeditiously.

69    While the question of the existence of the implied undertaking giving rise to a need for leave was formally disputed, it was not pursued at any length. The real issue was the grant of leave, as to which there was a legitimate dispute, albeit resolved in the Trustee’s favour.

70    It is quite likely that, in all the circumstances, I would have acceded to consent orders for leave to be granted, making this contest unnecessary. Douglas had a right to oppose the grant of leave, but he must bear the consequences of that opposition to leave being unsuccessful.

71    In the light of the foregoing, there does not appear to be any good reason why the costs of the interlocutory application should not follow its outcome. That is the default position in r 40.04(a) of the Rules when an interlocutory application is successful. I can see no reason, let alone compelling reason, to order differently.

72    Douglas should therefore pay the Trustee’s costs of the interlocutory application as taxed or agreed.

Leave to discontinue and costs of the substantive Douglas proceedings

73    After considering the history of the matter and competing claims detailed below, I am of the view that the Trustee was justified in bringing the substantive Douglas proceedings and that he obtained much, if not all, of the relief he sought in the part of the application pertaining to Douglas. That is, although incomplete, the Trustee did achieve the furnishing of accounts for the administration of the mother’s estate, and, in the face of prior refusal to do so, he did obtain copies of numerous invoices upon which Douglas had made payments from the funds in the mother’s deceased estate, and numerous other documents at least partially explaining those transactions.

74    Both parties agree that there is nothing left to be decided in this Court between the Trustee and Douglas, in part because of the commencement of the Supreme Court proceedings. Pursuant to r 26.12(2)(c) of the Rules, I should therefore grant leave for the substantive Douglas proceedings to be discontinued.

75    The outcome the Trustee sought in this Court against Douglas was largely achieved. Once achieved, there was nothing left to litigate, or at least nothing that could not now be dealt with as an aspect of the Supreme Court proceedings. That outcome was not otherwise being achieved despite repeated requests prior to commencing proceedings against Douglas. Ample warning was given that the proceedings would be commenced against Douglas if the documents were not voluntarily provided. I cannot see any good reason why costs should not follow the Trustee’s success.

76    The authorities cited by Douglas in his submissions on costs do not compel a different outcome. Nor do oral submissions made at the hearing on 27 April 2016 or at the time of making the leave orders on 6 May 2016.

77    Douglas should therefore pay the Trustee’s costs of the substantive Douglas proceedings, including any reserved costs, as taxed or agreed. I do not consider it appropriate to order that those costs be paid on an indemnity basis, although that was sought by the Trustee in the 15 December 2015 application.

Conclusion

78    Leave is granted to discontinue the substantive Douglas proceedings. Douglas must pay the costs of the successful interlocutory application for leave and for any other costs of the substantive Douglas proceedings, including any reserved costs.

Associate:

Dated:    3 June 2016