FEDERAL COURT OF AUSTRALIA

Watson & Co Superannuation Pty Ltd v Dixon Advisory and Superannuation Services Ltd (No. 2) [2022] FCA 1504

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 600K of the Corporations Act 2001 (Cth), section 70-90 of Schedule 2 to the of the Corporations Act 2001 (Cth) (IPS) and section 23 of the Federal Court of Australia Act 1976 (Cth):

(a)    the fifth and sixth respondents grant access to; and

(b)    the solicitors for the applicant be authorised to inspect and make copies of and thereafter use for any purpose in or incidental to the conduct of this proceeding;

books of the first respondent (DASS) described in Schedule 1 to these Orders (together and severally, including copies) as redacted in accordance with these Orders (Books).

2.    Subject to Order 2A, the Books referred to in Order 1, are to be:

(a)    made available within 7 days after the date of these Orders and thereafter held available for inspection until further order; and

(b)    limited to the following information with respect only to DASS:

(i)    policy definitions;

(ii)    liability wording with respect to claims made by/on behalf of DASS;

(iii)    any exclusions that apply;

(iv)    any policy condition, both general and special;

(v)    the applicable sublimit/s; and

(vi)    the overall limit/s.

2A.    By 4:00pm on 15 December 2022, the policy identified in item 1 of Schedule 1 to these orders be made available according to the limitations in Order 2.

3.    Any redactions made in accordance with Order 2(b) above must:

(a)    be as narrow as possible to allow the context still to be understood;

(b)    be confined to names and numbers wherever possible; and

(c)    where the redaction is to an entire paragraph, the heading must remain for context.

4.    The applicant pay the reasonable costs of the fifth and sixth respondents in producing the Books.

5.    The costs of and incidental to the amended interlocutory application be reserved.

6.    The matter be re-listed for a case management hearing at 9:00am on 7 February 2023.

SCHEDULE 1 – Documents from DASS

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

REASONS FOR JUDGMENT

THAWLEY J:

1    On 27 October 2022 the Court concluded that the fifth and sixth respondents, being the voluntary administrators of Dixon Advisory and Superannuation Services Ltd (DASS), should be ordered to produce parts of documents in [1] and [2] of schedule 1 to an amended interlocutory application filed on 10 August 2022: Watson & Co Superannuation Pty Ltd v Dixon Advisory and Superannuation Services Ltd [2022] FCA 1273 (Watson No 1).

2    The Court made an order on 27 October 2022 that the parties and the insurers (Berkshire Hathaway Specialty Insurance Company and XL Insurance Company SE) confer with a view to resolving appropriate limitations to production of the relevant documents.

3    Agreement has not been reached. The matter was listed today for argument as to appropriate orders. Only the applicant and the insurers have sought to be heard.

4    The applicant submits that disclosure of the following information is appropriate for it to make an appropriate assessment of whether to seek to proceed against DASS and how rigorously to press its claims:

(a)    policy definitions;

(b)    liability wording with respect to claims made by/on behalf of DASS;

(c)    any exclusions that apply;

(d)    any policy condition, both general and special;

(e)    the applicable sublimit/s; and

(f)    the overall limit/s.

5    The insurers contend that what the applicant proposes provides tactical or other inappropriate advantages and should therefore be refused. The insurers contend that production should be limited to:

(a)    the policy name;

(b)    the policy holder; and

(c)    the policy period.

6    The applicant observed that it already had this information.

7    In Watson No 1, the Court ordered production by the administrators under section 70-90 of Schedule 2 to the Corporations Act 2001 (Cth) (IPS) and under s 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

8    In concluding that orders under section 70-90 of the IPS were appropriate, the Court said:

[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.

9    In concluding that orders for production under s 23 of the FCA Act were appropriate, the Court distinguished Evans v Davantage Group Pty Ltd (No 2) [2020] FCA 473 (Beach J). The reasons included:

[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.

…

[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.

…

[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.

…

[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.

10    In making orders under s 70-90 of the IPS and s 23 of the FCA Act, the Court was proceeding on the basis that disclosure would result in some advantage to the applicant which might not be able to be eliminated: Watson No 1 at [44] and [51]. The concern was to limit disclosure to what was “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 [as far as possible] does not confer tactical or other inappropriate advantages”: Watson No 1 at [67].

11    The position adopted by the insurers in written submissions and argument today was that there should not be disclosure of any information which might be seen to, or in fact, provide an advantage to the applicant. Perhaps it could have been more clearly expressed, especially at [67], but that is not what was intended to be conveyed in Watson No 1. It was recognised that the fact of disclosure to the applicant of information sufficient to allow it to make an informed decision as to whether to seek leave to proceed would provide an advantage to the applicant. This was seen as appropriate in the particular circumstances of the case, in particular because DASS was (and is) in administration. What was intended was that the applicant should be provided with information sufficient for it to make an appropriate assessment of whether to seek to proceed against DASS and how rigorously to press its claims. Production should not be required of parts of the documents where disclosure was not reasonably necessary for the applicant to be given information sufficient for it to make an appropriate assessment of whether to seek to proceed against DASS and how rigorously to press its claims. If production was required for the applicant to be given sufficient information, but there were some redactions or other limitations which could be ordered which would operate to limit the advantage whilst still providing the applicant with sufficient information, then such redactions or limitations should be made.

12    I am satisfied that the information identified by the applicant, set out at [4] above, is reasonably necessary to provide the applicant with sufficient information to make an appropriate assessment of whether to seek to proceed against DASS and how rigorously to press its claims.

13    As to the conferring of advantage on the applicant, the insurers emphasised, in particular, that:

(a)    the disclosure of the limits and sub-limits give the applicants a commercial advantage in negotiations;

(b)    the existence and content of exclusions provide for the applicants to tailor their claims so as to seek to avoid the application of such exclusions.

14    As to these particular matters:

(a)    disclosure of the limits and sub-limits is reasonably necessary to provide the applicant with sufficient information to make an appropriate assessment of whether to seek to proceed against DASS and how rigorously to press its claims. In my view, disclosure of this information does not confer an inappropriate advantage in the present context, in particular in circumstances where DASS is in administration;

(b)    As to (b), this information is also reasonably necessary to provide the applicant with sufficient information to make an appropriate assessment of whether to seek to proceed against DASS and how rigorously to press its claims. The case against DASS has already been pleaded. Accepting that there may be future amendments, or applications to amend which might need to be determined, I am not satisfied that the provision of this information is likely to confer an inappropriate advantage on the applicant in the particular circumstances.

15    In their submissions, the insurers emphasised a number of aspects of their earlier submissions concerning the advantages which would be obtained by the applicant if disclosure was ordered. These submissions contain substantial and often persuasive arguments for why disclosure would not be ordered in the typical case, in particular where there is no question concerning the solvency of the relevant respondent. As I sought to explain in Watson No 1 this case is different. It must be accepted, for example, that disclosure of policy limits provides an advantage to the applicant which it would not otherwise have had. As the insurers emphasised, it is normal for parties in civil litigation not to have information about the financial capacity of the other parties to meet judgments. This is not the typical case, because DASS is in administration – see: Watson No 1 at [43], [55] and [56].

16    For these reasons I will order production on terms broadly in accordance with what the applicant has proposed. I note that it was not submitted by the insurers that disclosure should be limited to particular persons, such as legal advisors, either in the first instance or at all.

Associate:

Dated:    13 December 2022

SCHEDULE OF PARTIES