Federal Court of Australia

Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd (No 5) [2021] FCA 1302

ORDERS

THE COURT ORDERS THAT:

1.    To the extent necessary, Salvatore Algeri and Timothy Bryce Norman as the joint and several receivers and managers appointed to the Plaintiff, are released from the implied undertaking not to make collateral use of the documents produced or filed in this proceeding, for the purposes of public examinations into the examinable affairs of the Plaintiff to be conducted in accordance with Part 5.9 of the Corporations Act 2001 (Cth).

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

REASONS FOR JUDGMENT

ANASTASSIOU J:

introduction

1    By interlocutory application dated 6 October 2021, the Plaintiff, Royal Express, and Salvatore Algeri and Timothy Bryce Norman as joint and several receivers and managers appointed to Royal Express (the Receivers), seek an order that they be permitted to use documents produced or filed in this proceeding for the purposes of public examinations into the examinable affairs of Royal Express in accordance with Pt 5.9 of the Corporations Act 2001 (Cth).

2    The Plaintiff’s interlocutory application is supported by an affidavit of Mr Algeri sworn on 6 October 2021 (the Ninth Algeri Affidavit) and written submissions filed on 6 October 2021. Relevantly, the application is not opposed by any of the Defendants, notwithstanding that I provided them with sufficient time to indicate whether they had any objection.

3    This application raises for consideration the application and scope of the implied undertaking in Harman v Secretary of State for the Home Department [1983] 1 AC 280 at 302 (Lord Diplock), 313 (Lord Scarman), 321 (Lord Roskill), commonly referred to as the Harman undertaking. It is well understood that the implied undertaking limits the use of documents obtained as a result of the compulsory processes of the Court to the purpose for which they were disclosed and precludes them from being used for a collateral or ulterior purpose: see, eg, Hearne v Street [2008] HCA 36; 235 CLR 125 at [3] (Gleeson CJ), [56]-[57] (Kirby J), [96]-[98] (Hayne, Haydon and Crennan JJ).

4    The Plaintiff contends that the implied undertaking does not prevent the proposed use of the documents because the intended purpose of the public examinations is inextricably linked with the allegations made in this proceeding as well as the relief sought. Further, the Plaintiff submits that even if the implied undertaking prevents the documents from being used in the foreshadowed public examinations, there are special circumstances which justify leave being granted to do so.

5    For the reasons that follow, I am satisfied that the implied undertaking does not inhibit the proposed use of the relevant documents in public examinations because that process arises out of, and is sufficiently connected with, the proceeding in which the documents were originally created or produced. However, out of abundance of caution, I have made orders granting leave for the Plaintiff to rely on those documents in public examinations into the examinable affairs of Royal Express.

Background

6    The background to this proceeding is set out in earlier judgments of this Court: see Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang [2021] FCA 585; Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang (No 2) [2021] FCA 593; Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd (No 3) [2021] FCA 611; Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd (No 4) [2021] FCA 691.

7    In summary, the Plaintiff operated a business of air cargo transportation, arranging for the receipt, shipment and delivery of customers’ goods overseas. The Plaintiff’s director is the First Defendant, Mr Huang. The other defendants are entities associated with the First Defendant, companies to which funds were transferred or invoices issued, and individuals associated with those entities.

8    On or around 4 September 2019, the Plaintiff entered into an agreement with the National Australia Bank Ltd (NAB) whereby NAB agreed to provide the Plaintiff with an Invoice Finance Facility with a credit limit of $17,000,000 (the Invoice Finance Facility). In general terms, NAB agreed to provide finance to the Plaintiff in respect of unpaid invoices issued by the Plaintiff to its customers.

9    The Plaintiff also executed a general security agreement on 4 September 2019 (the GSA) which granted NAB a security interest in all of the Plaintiff’s present and future property. The GSA is registered on the Personal Property Securities Register. The First Defendant also executed a guarantee in favour of NAB on the same date.

10    On 16 April 2021, NAB engaged Deloitte to investigate the affairs of Royal Express. On 29 April 2021, NAB notified Royal Express that it was in default under the terms of the Invoice Finance Facility.

11    One week later, on 7 May 2021, NAB notified Royal Express that the default had not been remedied and that NAB intended to enforce its rights under its security (which included the GSA) to recover the amount owed under the Invoice Finance Facility, being almost $17,000,000. The Receivers were also appointed on 7 May 2021 and have, since that date, uncovered invoices or transactions they allege were “illegitimate”.

12    More recently, the Receivers have been authorised by the Australian Securities & Investments Commission as eligible applicants for the purposes of conducting public examinations into the examinable affairs of Royal Express: see s 9 of Corporations Act. The Receivers intend to apply to the Court for the issue of examination summonses pursuant to Part 5.9 of the Corporations Act and wish to use various documents produced in this proceeding in those public examinations.

13    To allow time for that process to occur, the parties approached the Court and requested the matter be adjourned for a period of two to three months, mindful of the importance of conducting the proceedings efficiently. Accordingly, on 29 September 2021, I made orders adjourning two pending interlocutory applications which had been filed in the proceeding to a date to be fixed and adjourning the case management hearing to a date after 1 December 2021.

14    On 6 October 2021, the Receivers filed the present application, seeking to rely on the materials specified below in the foreshadowed public examinations. Those materials include documents produced in response to subpoenas, which the Court earlier granted leave to issue (listed in ‘Schedule 1’ of the Ninth Algeri Affidavit), and affidavits filed or served in the proceeding (listed in ‘Schedule 2’ to the Ninth Algeri Affidavit).

Schedule 1

1. Subpoena to produce documents addressed to Australia and New Zealand Banking Group Limited issued by the Court on 9 June 2021.

2. Subpoena to produce documents addressed to Australia and New Zealand Banking Group Limited issued by the Court on 21 July 2021.

3. Subpoena to produce documents addressed to American Express Australia Limited issued by the Court on 21 July 2021.

4. Subpoena to produce documents addressed to Commonwealth Bank Australia issued by the Court on 21 July 2021.

5. Subpoena to produce documents addressed to Australia and New Zealand Banking Group Limited issued by the Court on 1 September 2021.

6. Subpoena to produce documents addressed to Kay & Burton (Hawthorn) Pty Ltd issued by the Court on 1 September 2021.

7. Subpoena to produce documents addressed to ChangJiang Imports Pty Ltd issued by the Court on 1 September 2021.

8. Subpoena to produce documents addressed to Chang Jiang Financial Pty Ltd issued by the Court on 1 September 2021.

9. Subpoena to produce documents addressed to Bloom International Trading Pty Ltd issued by the Court on 1 September 2021.

Schedule 2

1. Affidavit of Salvatore Algeri sworn on 28 May 2021.

2. Affidavit of Salvatore Algeri sworn on 1 June 2021.

3. Affidavit of Antonio Crupi sworn on 4 June 2021.

4. Affidavit of Antonio Crupi sworn on 4 June 2021.

5. Affidavit of Philip Robinson sworn on 4 June 2021.

6. Affidavit of Carly Simone Donovan sworn on 7 June 2021.

7. Affidavit of Salvatore Algeri sworn on 16 June 2021.

8. Affidavit of Carly Simone Donovan sworn on 16 June 2021.

9. Affidavit of Jun Yan affirmed on 16 June 2021.

10. Affidavit of Xiaojuan Cheng affirmed on 16 June 2021.

11. Affidavit of Di Huang affirmed on 18 June 2021.

12. Affidavit of Salvatore Algeri sworn on 23 June 2021.

13. Affidavit of Salvatore Algeri sworn on 24 June 2021.

14. Affidavit of Jun Yan affirmed on 24 June 2021.

15. Affidavit of Jun Yan affirmed on 2 July 2021.

16. Affidavit of Salvatore Algeri sworn on 6 July 2021.

17. Affidavit of Carly Simone Donovan sworn on 8 July 2021.

18. Affidavit of Jun Yan affirmed on 11 July 2021.

19. Affidavit of Salvatore Algeri sworn on 15 July 2021.

20. Affidavit of Jun Yan affirmed on 18 July 2021.

21. Affidavit of Di Huang affirmed [on] 29 July 2021.

22. Affidavit of Carly Simone Donovan sworn on 25 August 2021.

23. Affidavit of Salvatore Algeri sworn on 25 August 2021.

24. Affidavit of Catherine Chiaw Yee Tan affirmed on 14 September 2021.

15    In addition to the documents identified in Schedule 2, there is an affidavit of the Second Defendant, Mengqiu Ji, affirmed on 11 June 2021, which the Receivers identify as being potentially relevant for the purposes of the public examinations. That affidavit is not listed in Schedule 2 because it was not filed in the proceeding (though it has been served on the Plaintiff).

Consideration

16    The relevant principles in relation to the implied undertaking are well understood. In the leading Australian authority of Hearne, Hayne, Heydon and Crennan JJ described the implied undertaking as follows:

96     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…

97    It is common to speak of the relevant obligation as flowing from an “implied undertaking”.

    …

106    The fact that the role of the word “undertaking” is merely to indicate the way in which an “obligation” which is “imposed by law” as a “condition” of discovery binds the disclosee highlights the substantive nature of the obligation. There is nothing voluntary about the “undertaking”.

“The implied undertaking not to make collateral use of documents disclosed on discovery arises automatically as an incident of the discovery process. It is in no sense implied as a result of dealings between the parties. The discloser may well not have thought of the implications of giving discovery and the disclosee may well not have turned his mind to the matter of what use he can make of the documents outside the action. Had he thought of it, he might well have wanted full freedom to do what he liked with the material, particularly if his own discovery is non-existent or very limited. So the obligation is not to be likened to a term implied in a contract between the parties to the litigation. On the contrary, it is an obligation to the court, not the other party, which is implied. It is for that reason that its breach is treated as contempt. The obligation is imposed as a matter of law.”

[Emphasis added. Footnotes omitted]

17    The Plaintiff submits that the implied undertaking does not arise in the present circumstances because the proposed use of the documents produced on subpoena and affidavits is not for a collateral or improper purpose. In this respect, the Plaintiff also refers to a recent decision of the Court of Appeal in Victoria in Hazell-Wright v 32 Domain Pty Ltd [2020] VSCA 129, in which the Court (Tate, McLeish and Hargrave JJA) observed at [19]:

In our view, these cases provide support for a general proposition that there is a class of subsequent cases between the same parties, or their privies, where the connection between the two cases has the result that the Harman undertaking in the earlier case does not prevent use of documents or information subject to that undertaking in the subsequent proceeding…

18    Having regard to these principles, the Plaintiff contends that the purpose for which the documents are sought to be used is the very purpose for which they were obtained under the compulsory process of the Court: see, eg, an analogous context in LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liquidation) [2021] FCA 324 at [17]-[27] (Stewart J). Accordingly, the Plaintiff submits that the implied undertaking does not prevent the proposed use of the documents because the purpose of the public examinations is inextricably intertwined with the claims made in this proceeding and its outcome.

19    More specifically, the Plaintiff submits that the following matters are integral to both this proceeding and the issues to be explored in public examinations:

(1)    the governance and management of Royal Express;

(2)    the involvement of various individuals in its affairs; and

(3)    the nature and purpose of various transactions entered into or invoices issued.

20    I agree that the proposed use is not for a purpose unconnected with, or collateral to, the litigation in the course of which the documents were created or produced: see Gavan v FSS Trustee Corporation [2019] NSWSC 667 at [91] (Ward CJ). To the contrary, this proceeding and the foreshadowed public examinations ought to be viewed as symbiotic, in the sense that the public examinations are intended to investigate the examinable affairs of Royal Express, including potential contraventions of the Corporations Act, which are at the heart of the principal allegations in the Plaintiff’s Statement of Claim.

21    On that basis, leave is strictly not required and it would be sufficient to make a declaration that the implied undertaking does not preclude the proposed use of the documents. However, out of an abundance of caution, I have considered whether leave should be granted for the Plaintiff to be relieved from the implied undertaking.

22    In order to be released from the implied undertaking, the party concerned must demonstrate “special circumstances”: Springfield Nominees Pty Ltd v Bridgelands Securities Ltd [1992] FCA 720; 38 FCR 217 at [17], [22]-[23], [26] (Wilcox J); Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; 218 ALR 283 at [31]-[32] (Branson, Sundberg and Allsop JJ). This test was recently endorsed by the Full Court in Glencore Coal Pty Limited v Franks [2021] FCAFC 61 at [20] (Reeves, Perry and Abraham JJ).

23    As the Full Court observed in Liberty Funding at [31] (Branson, Sundberg and Allsop JJ):

… The notion of “special circumstances” does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non‑litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. In Springfield Nominees, Wilcox J identified a number of considerations which may, depending upon the circumstances, be relevant to the exercise of the discretion. These were:

•    the nature of the document;

•    the circumstances under which the document came into existence;

•    the attitude of the author of the document and any prejudice the author may sustain;

•    whether the document pre‑existed litigation or was created for that purpose and therefore expected to enter the public domain;

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

•    the circumstances in which the document came in to the hands of the applicant; and

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

[Emphasis added]

24    It is significant that, in the present circumstances, the documents produced in response to subpoenas and affidavits filed or served in this proceeding came into existence for the purpose of preliminary investigations by the Receiver into the corporate affairs of Royal Express. For the reasons I have explained, the proposed use of those materials in public examinations will involve overlapping issues with the proceeding on foot and a commonality of parties. Plainly, the materials sought to be relied on are relevant to the examinable affairs of Royal Express: see ss 9 and 53 of the Corporations Act and Re Last Lap Pty Ltd (in liq) (No 3) [2020] FCA 1289 at [54]-[61] (Anderson J). Further, the materials will assist in ensuring the public examinations are conducted in the interests of justice, including in a manner that is efficient and minimises cost and delay, consistent with the overarching purpose in s 37M of the Federal Court of Australia Act 1976 (Cth). That is a significant factor relevant to my discretion, as identified in analogous circumstances in Re Endeavour Securities (Australia) Ltd (in liq) [2020] FCA 1773 at [14]-[15] (Derrington J).

25    Accordingly, to the extent necessary, I grant leave for the Receivers to use the documents in the foreshadowed public examinations.

Disposition

26    For the reasons I have given, I am satisfied that the proposed use of the relevant documents is not contrary to the implied undertaking as it does not involve use for purposes unconnected with or collateral to the purposes for which the material was produced in this proceeding.

27    However, even if that were not so, I am satisfied that the Receivers are entitled to be relieved from the implied undertaking and leave should be granted to use the documents in the public examinations. I have made orders accordingly.

Associate:

Dated:    26 October 2021

SCHEDULE OF PARTIES