FEDERAL COURT OF AUSTRALIA

Watson & Co Superannuation Pty Ltd v Dixon Advisory and Superannuation Services Ltd [2022] FCA 1273

ORDERS

THE COURT ORDERS THAT:

1.    The parties and insurers are directed to confer:

(a)    to seek to resolve appropriate limitations to production of the relevant documents;

(b)    with a view to agreeing within 14 days appropriate orders to give effect to these reasons.

2.    Reserve liberty to apply by email to the Associate to Thawley J in the event further time is required for the conferral contemplated by Order 1.

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

REASONS FOR JUDGMENT

THAWLEY J:

A    INTRODUCTION

1    This proceeding is a class action commenced pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act). It concerns retail clients of the financial advisory business carried on by Dixon Advisory and Superannuation Services Ltd (DASS) who held or acquired interests in the property investment fund known as the US Masters Residential Property Fund (URF). Claims are advanced against DASS, its parent company E&P Financial Group Limited (EDL) and two directors, Mr Alan Dixon and Mr Christopher Brown.

2    On 19 January 2022, the directors of DASS placed the company into voluntary administration pursuant to s 436A of the Corporations Act 2001 (Cth). Mr Stephen Longley and Mr Craig Crosbie were jointly appointed as voluntary administrators.

3    On 15 June 2022, the Court made orders staying a second class action, referred to as the “Kosen-rufu Proceeding” pending the resolution of the present proceeding – see: Kosen-Rufu Pty Ltd v Dixon Advisory and Superannuation Services Ltd [2022] FCA 573.

4    By an amended interlocutory application filed on 10 August 2022, the applicant sought various orders, including orders requiring the administrators of DASS and Mr Dixon and Mr Brown to produce to the applicant various categories of documents.

5    As against the administrators, the applicant relied upon s 600K of the Corporations Act 2001 (Cth) and s 70-90 in Sch 2 to the Corporations Act (entitled the “Insolvency Practice Schedule (Corporations)”) (IPS) and s 23 of the FCA Act. The applicant noted that, in some other cases, applications for a respondent’s insurance documents had sought to invoke s 33ZF of the FCA Act, but that the power in that provision was ruled inapplicable by Beach J in Evans v Davantage Group Pty Ltd (No 2) [2020] FCA 473. The applicant did not seek to rely on s 33ZF. The administrators were joined as the fifth and sixth respondents to the amended interlocutory application.

6    As against Mr Dixon and Mr Brown, the applicant relied only upon s 23 of the FCA Act.

7    By way of an interlocutory application filed on 5 September 2022, the insurers of DASS, Berkshire Hathaway Specialty Insurance Company and XL Insurance Company SE applied for leave to intervene pursuant to r 9.12 of the Federal Court Rules 2011 (Cth).

8    The applicant did not oppose the insurers being granted leave to intervene. The insurers’ interests, including their legal interest in the confidentiality of relevant insurance policies, will be substantially and directly affected if the applicant’s application is granted. Leave to intervene was granted at the hearing.

9    The insurers have advised the applicant that indemnity has been granted to the respondents in relation to the proceedings under an asset management policy for the period 28 June 2018 to 14 June 2019 and have otherwise declined to provide further information. The relevant policy appears to be the Professional First Asset Manager Liability Insurance Policy, number 47-ZEP-000273-04.

10    By the time of hearing, only two categories of documents were sought, namely:

1.    The Professional First Asset Manager Liability Insurance policy, Policy Number 47-ZEP-000273-04 issued by Berkshire Hathaway Speciality Insurance and AXA XL for the period 28 June 2018 to 14 June 2019.

2.    Any indemnity insurance policy or policies not referred to in 1 above, that were current between the period of 15 April 2011 to 19 January 2022 and providing cover to:

a)    Dixon Advisory and Superannuation Services Pty Ltd; and/or

b)    E&P Financial Limited; and/or

c)    Alan Cochrane Dixon; and/or

d)    Christopher Matthew Brown,

in respect of or in connection with the DASS financial services business or the association or involvement of any of EDL, Dixon or Brown with or in the DASS financial services business, including any cover notes, certificates of insurance, policy schedules, standard terms and conditions, run off policies, and other documents that form part of the insurance contract(s) (Insurance Policy).

11    The administrators have stated that they have relevant insurance policies in their possession. They have declined to provide those policies because the insurers have: (a) maintained that the policies and their terms are confidential; and (b) not consented to any disclosure by the administrators. The administrators, seeking to act in the best interests of the general body of creditors, have taken a neutral role on the application.

B    THE ADMINISTRATORS: SECTION 70-90 OF THE IPS

The statutory regime

12    Section 70-90 of the IPS is a relatively recent innovation, enacted in 2016 for the stated purpose of addressing the “information asymmetry” and existing regulatory barriers that creditors face in obtaining information relating to corporate insolvencies. As Black J noted in In the matter of 1st Fleet Pty Ltd (in liquidation) [2019] NSWSC 6 at [22]:

The Explanatory Memorandum to the Insolvency Law Reform Bill 2015 (Cth) assists in identifying the statutory purpose of these provisions. That Explanatory Memorandum noted (at [6.5]) concerns identified in a 2010 Senate inquiry as to a “feeling of general creditor powerlessness” during external administrations, and concerns as to the efficiency of governance of insolvency administrations, including as to the approval of remuneration of external administrators and “practitioners and stakeholders rights and responsibilities to communicate with each other”. The Explanatory Memorandum also noted (at [6.12]) that:

The current regulatory barriers to creditors obtaining information entrenches the inherent problems creditors face in assessing the quality of the insolvency services provided.

13    Anderson J also referred to the Explanatory Memorandum to the Insolvency Law Reform Bill 2015 (Cth) in Secatore, in the matter of Last Lap Pty Ltd (in liq) [2020] FCA 627 at [42]:

The IPS was inserted into the Act by the Insolvency Law Reform Act 2016 (Cth). The Explanatory Memorandum to the relevant Bill provides some context for the insertion of s 70-45 of the IPS (and r 70-15 of the IPR). The Explanatory Memorandum relevantly expresses the following:

Context of amendments

…

6.12     Information asymmetry interferes with the efficiency of the insolvency market and contributes to the risk of misconduct by market participants. The current regulatory barriers to creditors obtaining information entrenches the inherent problems creditors face in assessing the quality of the insolvency services provided.

…

Summary of new law

…

6.18     Creditors will be able to request information from a corporate insolvency practitioner and request that a creditors’ meeting be held during an external administration. Creditors and members with a financial interest will be able to make reasonable requests for information that practitioners would be obliged to meet provided there is funds available to meet the request. Reporting obligations during an administration will be prescribed by the Insolvency Practice Rules.

…

Comparison of key features of new law and current law

…

…

…

14    Section 70-90 is located in Part 3 of the IPS, entitled “General rules relating to external administrations”. Part 3 contains Divs 55 to 90. Division 55 provides:

Part 3—General rules relating to external administrations

Division 55—Introduction

55-1 Simplified outline of this Part

15    Division 70 is entitled “Information” and contains Subdivs A to G. Subdivision A provides:

Division 70—Information

Subdivision A—Introduction

70-1 Simplified outline of this Division

16    An “external administrator” is defined in s 5-20 as including an administrator.

17    Subdivision D is entitled “Giving information etc to creditors and others”. Section 70-40 provides a statutory right for creditors by resolution to request the external administrator to provide information. The statutory right of direct relevance to the present case is that found in s 70-45 of the IPS which provides a statutory right for individual creditors to request information. It provides:

Right of individual creditor to request information etc. from external administrator

(1)     A creditor may request the external administrator of a company to:

(a)     give information; or

(b)     provide a report; or

(c)     produce a document;

to the creditor.

(2)     The external administrator must comply with the request unless:

(a)     the information, report or document is not relevant to the external administration of the company; or

(b)     the external administrator would breach his or her duties in relation to the external administration of the company if the external administrator complied with the request; or

(c)     it is otherwise not reasonable for the external administrator to comply with the request.

(3)    The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for an external administrator of a company to comply with a request of a kind mentioned in subsection (1).

18    As contemplated by s 70-45(3), the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR) prescribe the circumstances in which it is “not reasonable” for an external administrator to comply with a request made under s 70-45(1). Rule 70-15 of the IPR provides as follows:

Right of individual creditor to request information etc. from external administrator

(1)     This section is made for the purposes of section 70-45 of the Insolvency Practice Schedule (Corporations).

Unreasonable requests

(2)    It is not reasonable for an external administrator of a company to comply with a request to give information, provide a report or produce a document to a creditor if the external administrator, acting in good faith, is of the opinion that:

(a)     complying with the request would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighs the benefits of complying with the request; or

(b)     the information, report or document would be privileged from production in legal proceedings on the ground of legal professional privilege; or

(c)     disclosure of the information, report or document would found an action by a person for breach of confidence; or

(d)     there is not sufficient available property to comply with the request; or

(e)     the information, report or document has already been provided; or

(f)     the information, report or document is required to be provided under the Corporations legislation within 20 business days of the request being made; or

(g)     the request is vexatious.

(3)     Without limiting paragraph (2)(g), a request may be taken to be vexatious if the external administrator receives the request within 20 business days of receiving a similar request from the creditor.

Reasonable requests

(4)    It is reasonable for an external administrator of a company to comply with a request to give information, provide a report or produce a document to a creditor if subsection (2) does not apply to the request.

(5)     Despite paragraph (2)(d), (e) or (f), it is also reasonable for an external administrator of a company to comply with a request to give information, provide a report or produce a document to the creditor if:

(a)     the creditor agrees to bear the cost of complying with the request; and

(b)     if required to do so by the external administrator—security for the cost of complying with the request is given to the external administrator before the request is complied with.

19    The circumstances in which it is “not reasonable” for an external administrator of a company to comply with a request for information or documents specified in r 70-15(2) of the IPR are exhaustively stated: Secatore at [45], applying 1st Fleet at [24]. This conclusion follows from the structure of the provision and the language in r 70-15(4) and (5).

20    Subdivision G of the IPS is entitled “External administrator may be compelled to comply with requests for information etc”. The application of Subdiv G is addressed in s 70-65 which provides:

70-65 Application of this Subdivision     

(1)    This Subdivision applies if the external administrator of a company refuses a request made by a person under:

(a)    Subdivision D; or

(b)    a rule made under section 70 50;

(c)    Subdivision E; or

(d)    section 80 40;

to give information, provide a report or produce a document.

(2)    In this Subdivision:

(a)    the information, report or document is referred to as the relevant material; and

(b)    the request is referred to as the request for relevant material; and     

(c)    giving the information, providing the report or producing the document is referred to as giving the relevant material.

21    Clause 70-90, which is in Subdiv G, relevantly provides:

Court may order relevant material to be given

(1)     The person or persons who made the request for the relevant material may apply to the Court for an order that the external administrator give the person or persons all or part of the relevant material.

…

(3)     On application under subsection (1) or (2), the Court may:

(a)     order the external administrator to give the person, or any or all of the persons, who made the request for the relevant material all or part of that material; and

(b)     make such other orders, including orders as to costs, as it thinks fit.

The request for information and refusal

22    It was not disputed that the applicant was a creditor of DASS, capable of making a request for information under s 70-45 of the IPS. It was also not disputed that the applicant made a request which included a request for the information and documents now sought. The administrators had to comply with that request unless at least one of the exceptions in s 70-45(2) applied.

23    The administrators say that they formed the opinion, in good faith, that it was “not reasonable” to comply with the request to provide the insurance policies on the basis of the matters referred to in r 70-15(2)(a) and (c) of the IPR. The opinion which the administrators formed was that disclosure of the policies or their terms would:

(1)    expose the administrators to a claim for breach of confidence in circumstances where the insurers have contended that the policies are confidential (and the administrators have not identified any basis to disagree with that position) and have not consented to any disclosure by the administrators;

(2)    risk the insurers avoiding the policies, which would cause substantial prejudice to the creditors of DASS because, if the insurance policies (to the extent that they respond to the applicant’s claim) were not available to meet the claims of the group members, then those claims would impose a greater imposition on the remaining assets of DASS (and therefore likely lead to a lower overall return to creditors as a whole) and that prejudice outweighs the benefits of complying with the request.

The scope of the Court’s power under s 70-90

24    The insurers submitted that the Court’s function on an application under s 70-90 is limited to deciding whether the administrator formed the opinion in good faith; if there is a reasonable basis for the opinion formed, it will be shown to have been an opinion formed in good faith.

25    The insurers submitted that:

    The administrators had formed the opinion, in good faith, that complying with the request would found an action for breach of confidence.

    The holding of that opinion is a prescribed category where it is not reasonable to comply with the request under s 70-45 of the IPS: r 70-15(2)(c) of the IPR.

    The administrators’ opinion has a reasonable basis. The insurance policies are confidential, and the insurers would therefore have an action against at least DASS were the policies to be disclosed.

    The applicant has identified no grounds to impugn the bona fides of that opinion. It follows that the request is “not reasonable” and is exempt from production.

26    According to the insurers, it was not the Court’s function to determine whether the opinion of the external administrators was in fact correct, less still whether it was the preferable decision.

27    There is some support for the construction contended for by the insurers. In Re Pacific Biotechnologies Ltd [2020] VSC 636, Pacreef had requested documents which the administrator had refused to provide. One of the documents was a file note. The administrator had refused to provide the file note on the basis of the view, held in good faith, that the documents were privileged from production in legal proceedings on the ground of legal professional privilege – see: r 70-15(2)(c) of the IPR. Robson J said at [33] (footnotes omitted):

I accept that the administrator must establish that he or she was acting in good faith in holding one or other of the prescribed opinions. I do not accept, as was submitted by Pacreef, that it is the court’s function in applying r 70-15(2)(b) to determine whether there is in fact privilege, and if so whether it has been waived.

28    His Honour stated at [35] and [36]:

In my opinion, for an administrator to discharge the onus placed on the administrator by r 70-15 to establish that he or she has acted in good faith, the administrator should establish that his or her opinion was based upon a reasonable basis.

In sum, in considering a request for document production under the Insolvency Practice Schedule, the administrators must establish that it is ‘not reasonable’ to comply with the request. In order to do so, the administrators must establish that they, acting in good faith, held any of the opinions in r 70-15(2) of the Insolvency Practice Rules.

29    Robson J concluded that it was not reasonable for the administrator to comply with the request for production of a file note, because the administrator, acting in good faith, had formed the view that it would be privileged from production in legal proceedings – see: [45], [49], [50].

30    There is nothing in the terms of s 70-90(3) which expressly provides for the Court’s task to be limited in the way suggested by the insurers. Nothing in the language of s 70-90 expressly confines the Court to an inquiry into whether the administrators’ decision was reasonable or was held in good faith.

31    In my view, the power under s 70-90 is not so constrained. If, for example, an administrator had refused to produce a document pursuant to a s 70-45 request for information because, acting in good faith, the administrator was of the opinion that the document was subject to legal professional privilege, it would be open to a Court to make an order pursuant to s 70-90(3)(a) for the external administrator to give the person who made the request all or part of the document, if the Court concluded that the document was not privileged, on the basis of its inspection of the document or otherwise. If a statutory power were needed for the Court to inspect the document, it is supplied by s 70-90(3)(b).

32    Section 70-90(3) is expressed in broad terms. It is unlikely that it was intended that a Court on an application under s 70-90(3) could not order production of documents in circumstances where a Court was satisfied that an external administrator had, in good faith, formed an erroneous opinion that a document was legally privileged.

33    The obverse situation has been considered, namely whether relief could be refused by the Court in circumstances where it was reasonable for an administrator to comply with a request. A broad view has been adopted.

34    Section 70-90(3)(a) of the IPS provides that, on application, the Court “may” order the external administrator to provide the relevant material all or part of that material. In 1st Fleet at [26]–[27], Black J stated:

[26]    There was reference, in submissions, to whether the word “may” in s 70-90(3) of the IPSC confers a discretion on the Court whether to make an order for production. Mr Kerr did not submit that the word “may” in s 70-90(3) meant “must” but submitted that the discretion conferred by that term was confined, and possibly limited to the type of orders that the Court might make to facilitate or require the production of documents, and was not a discretion at large to refuse to require a liquidator to comply with mandatory obligations imposed elsewhere in the IPSC (T10–11). Mr Ng submitted that, although s 70-55 of the IPSC does not authorise an external administrator to refuse compliance with a request by the Commonwealth on the basis that such compliance is not reasonable, s 70-90(3) nonetheless confers a discretion upon the Court in deciding whether to order the production of the relevant material, where the external administrator does not comply with a request under s 70-55. Mr Ng submitted that questions of reasonableness and whether a request is vexatious are relevant to the exercise of that discretion.

[27]    It seems to me that, although the use of the word “may” does not necessarily require that such a discretion exist, it is consistent with such a discretion. There is also good reason for the Court to have such a discretion, to deal at least with the possibility that documents have been produced by a liquidator, between the time of the original request and the time the matter is determined by the Court, so that there is no utility in an order for production being made by the Court. The Court plainly also has, on the express terms of s 70-90 of the IPSC, a discretion as to the extent to which information or documents should be produced. Such a discretion should, however, be exercised having regard to the purpose of the relevant provisions, namely to require the production of documents or information to creditors where an appropriate request is made, and it is not established that the request is unreasonable for the purposes of s 70-45 of the IPSC or r 70-15 of the Insolvency Practice Rules (Corporations), or where the requirement to produce such documents or information was mandatory under s 70-55 of the IPSC. It seems to me unlikely that the legislature would have intended that the Court had a further discretion, at large, under s 70-90(3) of the IPSC to withhold an order for the provision of information or documents, where s 70-45 or s 70-55 of the IPSC required that such information or documents be provided. The existence of a wider discretion of that character would undermine the predictability of the relevant provisions, increase the likelihood that there would be disputes as to their application, and undermine the purpose of the provisions recognised in the Explanatory Memorandum to the Insolvency Law Reform Bill, to which I have referred above.

35    I reject the insurers’ submissions concerning the scope of the power in s 70-90. The provision operates according to its terms. The external administrator of a company must refuse a relevant request before s 70-90 can apply: s 70-65(1). It follows that there must have been a request made under a relevant provision. The relevant provision here was s 70-45. Assuming a request has been made and refused, then the person “who made the request for the relevant material may apply to the Court for an order that the external administrator give the person or persons all or part of the relevant material”: s 70-90(1). If such an application is made, s 70-90(3) provides that the Court “may”: (a) order the external administrator to give the person some or all of the material; and (b) make such other orders, including orders as to costs, as it thinks fit. The word “may” plainly furnishes a discretion: s 33(2A) of the Acts Interpretation Act 1901 (Cth). The discretion in s 70-90(3) is confined only by the statutory purposes for which the power is conferred.

Consideration

36    As mentioned, there was no dispute that the insurance policies were requested under s 70-45 or that the request was refused. Nor was it contended that the material was not relevant to the external administration of the company – see: s 70-45(2)(a).

37    The applicant submitted that the subject matter of the requests was centrally relevant to the applicant’s assessment, as a creditor of DASS, of a matter relating or at least incidental to the administration of DASS, namely:

(a)    whether the insurance cover available to DASS is sufficient to enable DASS to meet the claims made against it in the class action, if leave to proceed against it is sought and granted;

(b)    whether in light of the insurance cover available to DASS (which might be the same policy as applies to EDL or, more importantly, the director respondents) the administrators are acting reasonably in defending the class action, as opposed to compromising it on the basis that the costs of the action alone will exhaust or materially exhaust the cover; and

(c)    whether DASS has information regarding the other respondents’ insurance, disclosing that it has or may have a practical ability to offset the claims on its own assets (including insurance) by actions for contribution from Mr Dixon or Mr Brown that might be paid from “directors’ and officers’” (D&O) cover obtained by or for them and known to DASS.

38    The insurers have maintained that the insurance policies and their terms are confidential. Insurance arrangements are generally regarded as confidential because they contain commercially sensitive terms: Commonwealth Bank of Australia v ACN 076 848 112 Pty Ltd [2015] NSWSC 666 at [23] (Ball J); Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19 at 42 (Lander J). The insurers have not consented to any disclosure by the administrators.

39    I conclude that the administrators, acting in good faith, formed the opinion that disclosure of the insurance policies would found an action by the insurers for breach of confidence. I am also satisfied that the administrator, acting in good faith, formed the opinion that disclosure of the policies would risk the insurers avoiding the policies, which would cause substantial prejudice to the creditors of DASS within the meaning of r 70-45(2)(a) of the IPR. I therefore conclude that it was “not reasonable” for the administrators to comply with the request within the meaning of r 70-45(2)(c) of the IPR.

40    It follows that that I am satisfied that the administrators were right to have refused the request. It does not necessarily follow that s 70-90 has no relevant application.

41    The applicant invited the Court to look at s 70-90 as if it provided for an appeal in the nature of a hearing de novo rather than an appeal stricto sensu. According to the applicant, on the “appeal” in the nature of a de novo hearing, the Court stands in the shoes of the external administrator and, if the Court ordered production of the insurance policies, that would not expose any person to an action for breach of confidence. In this respect, the applicant referred to Davantage at [24]. It follows, the applicant submitted, that r 70-45(2)(c) would not apply.

42    As stated above, s 70-90 operates according to its terms. It is not a provision which gives the creditor whose request was refused an appeal as such. Section 70-90 is cast in wide terms, providing a discretion confined only by the statutory objects. One of the statutory objects is not to require disclosure of information by external administrators where to do so would expose a person to an action for breach of confidence or cause substantial prejudice to one or more creditors. In the vast majority of cases, a Court would refuse to grant relief unless an administrator was shown to have acted erroneously or on the basis of an opinion not held in good faith. However, it does not follow from the statutory language and context that it was intended that the Court could only exercise the discretion to compel production where the administrator was shown to have acted erroneously or on the basis of an opinion not held in good faith.

43    This case is not the typical case. The discretionary power in s 70-90 is engaged. There was a request for relevant information which was refused by the administrators. The Court therefore has the discretionary power to order production. A powerful factor against ordering production is the conclusion I have reached that the administrator was right to refuse production. In the typical case, this would be sufficient to refuse relief. Favouring exercise of the discretion is the fact that it is in the interests of the administration of DASS and in the interests of its creditors as a whole, including the applicant, that at least part of the insurance policies be disclosed to at least certain people. I take that view for a number of reasons, including:

(1)    The information will inform the applicant whether:

•    it should seek leave of the Court to proceed against DASS under s 440D(1)(b) of the Corporations Act;

•    it is commercially viable to prosecute the proceeding against DASS to judgment or seek to settle the matter and, if so, at what amount;

•    there are insurance policies, such as D&O policies, which inform the conduct of the proceeding or the conduct of the administration of DASS;

•    the administrators are acting reasonably and appropriately.

(2)    It is desirable that the applicant know whether and how forcefully to press claims against DASS and, to the extent that the administrator holds documents revealing the insurance position of other respondents, the other respondents.

(3)    It is in the interests of creditors as a whole for the applicant to know the matters identified above. This is desirable, for example, so that the administrators’ time is not wasted or unnecessary expense incurred. It is also undesirable that the insurance proceeds should be consumed in litigation costs rather than applied to the claims of creditors including the present class.

(4)    The disclosure by the administrators, in compliance with an order of the Court, of at least part of the insurance policies to at least certain people will not expose the administrators to liability for breach of confidence.

(5)    I am not satisfied that there is any realistic possibility of any policy being avoided by reason of any disclosure by the administrators made pursuant to an order of the Court.

44    In exercising the discretion to require production, with limits, I have taken into account that prejudice to the insurers or, if relevant, other insureds, can be eliminated or mitigated by limits to what is disclosed and to whom such disclosure is made.

45    I will hear further from the parties as to what exactly should be disclosed and to whom.

C    THE ADMINISTRATORS: SECTION 23 OF THE FCA ACT

46    As mentioned, s 23 of the FCA Act was the alternative basis for the application against the administrators of DASS, and the sole basis for the application as against Mr Dixon and Mr Brown.

47    In Davantage, Beach J proceeded on the basis that s 23 of the FCA Act provides power to order disclosure of an insurance policy: at [5], [111]. I proceed on the same basis, but note the insurers’ “formal submission” that it does not: T44.9.

48    Beach J rejected the submission that case management principles of themselves, or ss 33ZF(1), 37M or 37P specifically, could justify an order for production of an insurance policy which was not otherwise discoverable: at [76] to [80], [111].

49    Beach J considered whether production should be ordered in order for the applicant to determine whether he should bring separate proceedings against the insurers: at [81] to [94]. That consideration does not arise in the present case.

50    Beach J noted that production could not be justified solely on the basis that the documents might assist an applicant in a mediation: at [95] to [98]. It was not contended in the present case that disclosure should be ordered for this reason.

51    Beach J concluded that disclosure might confer upon the applicant an inappropriate tactical advantage, in mediation or otherwise: Davantage at [59], [64], [73]-[74], [98]. I agree that the question whether a tactical advantage is conferred is relevant to whether production should be ordered, but consider that any real tactical advantages can either be eliminated or reduced to an acceptable level by ordering partial disclosure and limiting those to whom disclosure is made.

52    Beach J considered whether disclosure would be necessary at the s 33V settlement approval stage in any event (see also Quintis Ltd v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19; 385 ALR 639 at [404]), such that it might as well happen sooner rather than later. Beach J observed:

[101]    Now I accept that the applicant has made a reasonable point in saying that on a s 33V approval application, insurance questions may need to be looked at. Assume that to be so. There are a number of points that can be made.

[102]    First, I can design procedures to flush out the insurance question at that stage if necessary. I could require confidential material to be produced by Davantage or the insurers at that point. In circumstances where Davantage’s insurers have denied indemnity to Davantage, it would, for example, be possible for a confidential affidavit to be filed with the Court justifying why denial of indemnity was reasonable in all the circumstances, to otherwise supplement the information available to the Court as to the financial position of Davantage. I could even appoint an amicus. Indeed, I could even refer the matter to a special referee or independent expert to look at the matter and to provide an opinion to the Court. There are many possibilities. Such procedures could firm up or verify any foundational assumptions that the applicant had made in agreeing to a settlement in principle, subject to s 33V approval.

[103]    Second, if any foundational assumptions were not firmed up, s 33V approval would not be given and the matter would be given back to the applicant to decide the course he wanted to take. As part of this, at that stage some disclosure to the applicant might be ordered by me of the insurance position. More generally, the applicant could seek further directions from me as to how he should proceed.

[104]    Third, the applicant asserts that without the insurance documents he cannot even reach an in principle settlement at any mediation. Let me say a number of things as to this.

[105]    In a sense, any applicant in any litigation whether a class action or not might assert this. The fact is that settlements occur on imperfect information.

[106]    Further, the applicant can settle “in principle” on a foundational assumption or a representation made by the respondent. If that is made transparent before me I will seek to verify it in any s 33V process if the applicant cannot. Indeed, the respondent would also have an interest in verifying it. And if it was not verified, then other steps can be taken.

53    In this regard, the applicant’s written submissions included:

… Ex hypothesi the applicant in that s 33V situation has been led to believe there is limited insurance, and has agreed terms for settlement on that basis, but then the Court has itself obtained the insurance information and discerned that there are such funds available that in all the circumstances the proposed settlement is not actually fair and reasonable and must be refused. The applicant is left without a settlement – but presumably also without any better information about the level of insurance available. When the hard question is asked as to “what happens then?”, the answer in various ways is that the parties all incur a lot more costs, and eventually the applicant ends up with the insurance information anyway – or else the case never settles.

54    In oral submissions, the point was made that an applicant might have to keep coming back to Court for increasingly higher settlements to be approved, thus increasing costs and delay until the Court ultimately accepted that the settlement was appropriate having regard to the insurance position.

55    So far as concerns the relief sought against the administrators, this case differs from Davantage in at least one important respect: DASS is in administration. The insurance policies are not directly relevant to any pleaded issue in the proceeding. However, the insurance policies are relevant to the question of whether the Court would grant leave to proceed under s 440D(1)(b) should such an application be made – see, for example: Lopez v Star World Enterprises Pty Ltd [1997] FCA 454 (Olney J); Re Gordon Grant & Grant Pty Ltd (1982) 1 ACLC 196 at 199 [5] (Master Lee QC).

56    The insurers’ position was that no application has been made under s 440D and that, therefore, the issue is not yet relevant. The applicant submitted that the information is relevant to the applicant’s decision whether to “incur the further costs of a full-blown application for leave to proceed”. I accept that the information is relevant to the decision which has to be made as to whether to seek leave to proceed against DASS under s 440D of the Corporations Act.

57    Section 37M(1) to (3) of the FCA Act provides:

37M    The overarching purpose of civil practice and procedure provisions

(1)    The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:

(a)    according to law; and

(b)    as quickly, inexpensively and efficiently as possible.

(2)    Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court’s overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

(3)    The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.

58    Having regard to s 37M(3) of the FCA Act, I consider production should be required under s 23 of the FCA Act at this stage of the proceedings rather than requiring an application under s 440D first to be made and then requiring production under compulsion. An analogy can be drawn in this respect with the sorts of considerations which underlie the ability of a prospective applicant to seek discovery from a prospective respondent under r 7.23 of the Federal Court Rules 2011 (Cth) before commencement of substantive proceedings.

59    In considering that production by the administrators should be required now, I also take into account the matters referred to at [43] and [44] above. Further, the litigation is inevitably going to be expensive and lengthy consuming significant public and private resources. It is in the interests of the administration of justice that this not occur if the only real beneficiaries are the parties’ lawyers or any resulting victory is pyrrhic. In my view, the considerations which often lead to refusal of an order for production in other contexts can be managed by appropriate orders, for example orders requiring only partial production and by orders to protect confidentiality.

60    I do not think that a case such as this warrants the adoption of a binary approach of either ordering or refusing production of insurance policies.

61    I would not order production by Mr Dixon and Mr Brown under s 23 of the FCA Act. Each of them, by their legal representatives, has conveyed that they do not have policies as described in [2] of Schedule 1 to the amended interlocutory application.

62    Given that I will order production of the policy in [1] of Schedule 1 by the administrators, there is no point in also ordering production by Mr Dixon or Mr Brown.

D     OTHER ISSUES

Should production extend to EDL insurance policies?

63    The insurers submitted that disclosure under [2] of the amended interlocutory application should not extend to information concerning insurance covering EDL, because EDL is not in administration or liquidation and is not insolvent. So far as concerns the power in s 70-90, the requested documents are still relevant to the administration of DASS and I would not limit the order for production by excising a reference to EDL in [2]. I would also order production under the power in s 23 of the FCA Act, because those documents are relevant to whether to grant leave to proceed under s 440D of the Corporations Act.

Communications between Mr Brown / Mr Dixon and insurers

64    The amended interlocutory application sought the following order at [5]:

5.    Within seven (7) days after the date of this Order, the solicitors for Dixon and Brown are to provide confirmation to the Applicant’s solicitors as to whether, in respect of Dixon or Brown respectively:

a.    a claim has been made by or for them for indemnity under any insurance policy, in respect of the claims the subject of this proceeding;

b.    any insurer has agreed, or alternatively refused, to provide indemnity or coverage (on a conditional or unconditional basis), or is still considering whether to provide indemnity or coverage, for:

(i)    defence costs in this proceeding; and

(ii)    any potential liability of any respondent in this proceeding; and

(iii)    in the event indemnity has been refused, the basis for such refusal.

65    As the insurers submitted, this seeks confidential communications between an insured and insurer. Such an intrusion into the insurance relationship, which involves heightened duties of frankness and confidentiality, ought not be permitted – see: Ingram as trustee for the Ingram Superannuation Fund v Ardent Leisure Limited [2020] FCA 1302 at [98] (Derrington J).

E    CONCLUSION

66    As to [1] of the amended interlocutory application, the Court made an order at the hearing joining the administrators to the amended interlocutory application.

67    As to [2] and [4] of the amended interlocutory application, the administrators should be ordered to produce parts of the documents in [1] and [2] of Schedule 1 to the amended interlocutory application. That production should be ordered pursuant to s 600K of the Corporations Act, s 70-90 of the IPS and s 23 of the FCA Act. I will hear further from the parties as to the limitations which should be made on production and the precise form of orders which should be made. The intention is to fashion orders which have the effect of providing only that information which is truly needed for the applicant to make an appropriate assessment of whether to seek to proceed against DASS and how rigorously to press its claims and to do so in a way which does not confer tactical or other inappropriate advantages. It may be that the parties (and insurers) can resolve this between themselves and they are directed to confer to seek to resolve appropriate limitations to production of the relevant documents.

68    I dismiss [3] and [5] of the amended interlocutory application.

69    The applicant should pay the administrators’ reasonable costs of production as contemplated by [6] of the amended interlocutory application.

70    Costs issues should be dealt with after addressing the outstanding issues.

71    The parties should confer with a view to agreeing within 14 days appropriate orders to give effect to these reasons.

Associate:

Dated:    27 October 2022

SCHEDULE OF PARTIES