Federal Court of Australia

Nicholson, In the matter of Endeavour Securities (Australia) Limited (in liq) [2020] FCA 1773

ORDERS

THE COURT ORDERS THAT:

1.    The applicant is released, to the extent necessary and for the purpose set out in Order 2 below, from any implied undertaking with respect to the use of all documents produced in response to the orders for production issued in this proceeding on the following persons:

(a)    Ian Williams;

(b)    Paul Raftery;

(c)    Paul Nielsen;

(d)    Jason Mark Tracy and David Michael Orr in their capacity as joint and several liquidators of Endeavour Securities (Australia) Limited (In Liquidation) ACN 079 988 819 and Linchpin Capital Group Pty Ltd (In Liquidation) ACN 163 992 961; and

(e)    Willis Towers Watson Australia Holdings Ltd ACN 112 435 079.

2.    The applicant is granted leave to use the documents produced by the persons referred to in Order 1 above for the purposes of the Federal Court of Australia proceedings number NSD 939 of 2020.

3.    No order as to costs.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    The application before the Court is for orders that the applicant, Ms Betty Mary Nicholson, be released, to the extent necessary, from any implied undertaking with respect to the use of documents which she has previously obtained in response to certain orders for production made in these proceedings. Ms Nicholson also seeks leave to use those documents in another proceeding, namely NSD 939 of 2020.

Background

2    These proceedings were commenced on 16 August 2019 by Ms Nicholson for the issue of summonses for examination and orders for production directed to the directors of Linchpin Capital Group Ltd (Linchpin) and Endeavour Securities (Australia) Ltd (Endeavour), the liquidators of those companies and a number of other parties.

3    Ms Nicholson was an investor in a registered managed investment scheme known as “Investport Income Opportunity Fund” (the Registered Scheme) of which Endeavour was the responsible entity. The primary asset of the Registered Scheme was its investment in an unregistered managed investment scheme also known as “Investport Income Opportunity Fund” (Unregistered Scheme), of which Linchpin was the trustee.

4    In earlier litigation pursued by the Australian Securities and Investments Commission (ASIC), orders were made appointing receivers to the property of Endeavour including the Registered Scheme and to the property of Linchpin, including the Unregistered Scheme. Subsequently, orders were made that Endeavour and Linchpin be wound up. The Court made declarations to the effect that Endeavour had contravened certain provisions of the Corporations Act 2001 (Cth) (Corporations Act) relating to the operation of the managed investment scheme and that Linchpin had contravened several provisions of the Corporations Act by failing to hold the necessary Australian Financial Services Licence to issue interests in the Unregistered Scheme.

5    The process of the winding up of the companies and of the schemes is ongoing.

6    In her capacity as a creditor of the companies and/or the schemes, Ms Nicholson sought and obtained orders for the examination of the directors of the companies and orders for the production of documents. That was in the context of the winding up of the companies and Ms Nicholson had secured the authorisation of ASIC to seek those orders. In the absence of such authorisation, she would not have been an “eligible applicant” for whom such relief was available under s 596A of the Corporations Act.

7    In general terms, the orders for production of documents were directed to eliciting information relevant to:

(a)    the directors’ involvement in the contraventions of the Corporations Act which were the subject of the orders made by the Court against the companies; and

(b)    the directors’ ability to meet any judgment sum against them, either by their own resources or pursuant to any available policies of insurance.

8    The orders for production were directed to the companies’ liquidators and insurance brokers for the purposes of ascertaining the nature and extent of their insurance and whether it would respond to the claims made.

9    Following the production of those documents, a class action was commenced against those companies and their directors (NSD 939 of 2020). The lead plaintiff in those proceedings is J & J Richards Super Pty Ltd as Trustee for the J&J Richards Superannuation Fund. Ms Nicholson, who is a member of the class action (having sustained a substantial loss of her investment in the funds), seeks to use the documents obtained in these proceedings in NSD 939 of 2020. For that purpose she seeks, to the extent it is necessary, release from any implied undertaking not to use the documents which she has obtained.

Release from the implied undertaking

10    There is a question in this matter as to whether Ms Nicholson requires leave or whether there is any implied undertaking in the circumstances of the present case. I will return to that topic subsequently, but for present purposes I will consider the matter on the assumption that leave is required.

Relevant principles

11    It is well established that the parties to legal proceedings who obtain disclosure of documents or information under legal compulsion are subject to a substantive obligation not to use the documents or information for any purpose other than that for which the documents were obtained. It is said to derive from an implied obligation to that effect: Harman v Secretary of State for the Home Department [1983] 1 AC 280, 304. That, of course, is subject to the evidence or information being used in open court, from which point it becomes publicly available: Hearne v Street (2008) 235 CLR 125, 154 – 155 [96]. However, where a party has obtained documents or information in the course of proceedings a court may, nevertheless, release the party from any implied undertaking. The granting of such relief is discretionary and a power to be exercised in all of the circumstances of the particular case. It is generally accepted that an applicant must establish some “good reason” as to why documents or information obtained in one piece of litigation should be used for their advantage in other piece: Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283, 289 – 290 [31].

12    Although the discretion to release a party from the implied undertaking is untrammelled, it is necessary that it be exercised in a judicial and principled manner. In Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217, Wilcox J identified a range of non-exhaustive considerations which, depending upon the circumstances of the case, might be relevant to the exercise of the discretion. They included:

(a)    the nature of the document;

(b)    the circumstances under which the document came into existence;

(c)    the attitude of the author of the document and any prejudice the author may sustain;

(d)    whether the document pre-existed litigation or was created for that purpose and, therefore, expected to enter the public domain;

(e)    the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information);

(f)    the circumstances in which the document came into the hands of the applicant; and

(g)    most importantly of all, the likely contribution of the document to achieving justice in the other proceeding.

Application to the circumstances of this case

13    In the circumstances of the present case, the applicant has established “good reason” as to why she ought be relieved from any implied undertaking.

14    A determinative factor is that the documents obtained by Ms Nicholson pursuant to the orders for production are plainly relevant and significant to the class action proceedings and the relief which is sought in them against the companies and its directors. The documents are relevant to the issues of fact in those proceedings from which the alleged loss was sustained by each of the members of the class. They include the nature of the loan transactions entered into and the involvement of the directors of the various entities. The documents are also relevant to establishing the involvement of some of the directors in the alleged misleading or deceptive conduct of one of the companies. Further, each of the directors was required to produce documents relating to the establishment and management of the schemes and those documents are directly relevant to their alleged personal liability for the losses which were sustained.

15    A second significant factor is that the documents obtained under the orders for production might equally be procured by the applicants in the class action proceedings by way of discovery, or perhaps further examinations under Pt 5.9 of the Corporations Act. This would necessarily lead to the duplication of the costs which have already been expended and would also result in a substantial delay. The evidence before the Court suggests that undertaking the process of discovery would cost between $50,000 to $100,000 and would take at least four to six months. It would be, in those circumstances, inimical to the interests of justice to require Ms Nicholson or any other party in the class action to undertake a further expensive process when the documents might become immediately available at minimum cost.

16    A third factor is that the directors and liquidators who produced the documents in the current proceedings have not expressed any objection to their use in the class action proceedings. It is not irrelevant that, in the course of a previous case management hearing in the class action proceedings, the directors of Linchpin and Endeavour were made aware of Ms Nicholson’s intention to seek to be released from the implied undertaking as she now does. Orders were made permitting the directors and the liquidators to file evidence and submissions in response to the present application, however, none of them did so.

17    I should mention that at present the individual directors are unrepresented, not having sufficient funds to secure that representation. They have indicated that they have made claims with their insurers and are waiting on the insurer’s decision as to whether indemnity will be granted. It is unfortunate that the insurers are taking so long as this matter must move forward.

18    In any event, in the present circumstances it can be assumed that the parties who were required to produce the documents in the present proceedings are not strongly motivated to oppose the relief presently being sought. There is no evidence from the individuals as to the existence of any confidentiality with respect to the documents or commercial sensitivity. It is not suggested that the documents contain information which might otherwise be protected by leave or professional privilege. As was submitted on behalf of Ms Nicholson, this presumed attitude of the respondents ought weigh in favour of granting the release sought: Watson v AWB Ltd (No 5) (2009) 261 ALR 725; Australian Competition & Consumer Commission v Allphones Retail Pty Ltd (No 3) (2009) 259 ALR 541.

19    It ought to be noted that when the matter was called on for hearing, some suggestion was made that an adjournment should be granted to allow the matter to await the determination of the insurers. That application was made directly in a related application but applies equally here. Again, for the same reasons, it is not possible to delay this litigation pending the potential for the insurer to reach a conclusion. See J & J Richards Super Pty Ltd ATF the J & J Richards Superannuation Fund v Linchpin Capital Group Ltd (in liq) [2020] FCA 1772.

20    Presently, I am unable to see any argument which might be advanced on behalf of those persons which might alter the outcome of this application. Moreover, the directors have had more than sufficient time to secure representation in the several related proceedings and no justifiable reason has been shown as to why the applicant in the present proceedings ought not be entitled to pursue her relief.

21    A further factor supporting the grant of the relief sought by Ms Nicholson is that permitting her to use the documents in the class action proceedings would not occasion prejudice to the parties who produce them, beyond substantiating the claims brought in the class action and increasing those persons’ exposure to liability. That detriment is not in the nature of prejudice which might warrant the refusal of the release. As Pagone J explained in Griffiths & Beerens v Duggan (No 2) [2008] VSC 230 at [13], a claim that a party is prejudiced by the release of the undertaking on the ground that the true facts will come to light and their actual liability exposed is not prejudice relevant to the exercise of the discretion. Prejudice may be where some untoward forensic advantage is obtained and none has been shown to exist in this case.

22    The final factor supporting the release of the undertaking is that there is nothing to suggest that the documents obtained by Ms Nicholson could not be used in the class action proceedings. By their nature, they are transactional and merely provide evidence of the manner in which relevant businesses were undertaken and of the transactions entered into. There is nothing to suggest that any privilege attaches to any of them, and indeed, even if it had, the fact that they have already been produced and disclosed in the public examination proceedings would strongly warrant a conclusion that such privilege has been waived.

Conclusion on the exercise of the discretion

23    From the foregoing, Ms Nicholson ought to be relieved of any implied undertaking and orders should be made to that effect.

Whether an order releasing the undertaking is required

24    As mentioned previously, there is an issue as to whether it is necessary that Ms Nicholson be released because it is questionable that any implied undertaking actually exists.

25    Had the documents obtained by Ms Nicholson been sought and obtained by a liquidator of Linchpin or Endeavour there is no doubt that the liquidator would have been entitled to use them for the purposes of subsequent proceedings to realise the assets of the company without seeking the leave of the Court: Gothard v Fell (2012) 203 FCR 236, 244 [62]. By parity of reasoning one might readily conclude that the same principle would apply to eligible applicants who obtained documents in the course of an examination and intend to use them for the purpose of bringing claims which were the subject of the examination. As Black J said in Re Provident Capital Ltd (Receivers and Managers Appointed) (in liq) [2015] NSWSC 713 at [12]:

On one view, there would be little utility in authorising them to conduct such examinations if they were not entitled to have regard to the information obtained by them for that purpose. It seems to me that there is a strong argument, for those reasons, that the Plaintiffs do not, as they have suggested, require leave to use the documents for the purposes for which they seek to use them, because that use is, in fact, consistent with the production of those documents in the examinations.

26    As Counsel for Ms Nicholson submitted, the observations of his Honour were strictly obiter. Nonetheless, they are extremely persuasive.

27    Given the earlier conclusion that the discretion ought to be exercised in Ms Nicholson’s favour, there is no need to resolve this interesting question. That is particularly so in the absence of any substantive submissions on the topic. However, in the resolution of that issue, it would always be necessary to keep in mind the privileged position of a liquidator who acts as an officer of the court in the winding up of companies and whether that sets them apart from private litigants pursuing their own interests.

Conclusion

28    For present purposes, it is appropriate to make the orders releasing Ms Nicholson from any implied undertaking not to use the documents which she has obtained, and granting leave to use them in the class action proceeding (NSD 939 of 2020). There should be no order as to costs.

Associate:    

Dated:    7 December 2020