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Federal Court of Australia - Full Court |
Last Updated: 1 June 2009
FEDERAL COURT OF AUSTRALIA
Lehman Brothers Australia Limited v Wingecarribee Shire Council [2009] FCAFC 63
PRACTICE AND PROCEDURE – appeal
from decision to order appellant to produce insurance documents under s 23 of
the Federal Court of Australia Act 1976 (Cth) and the Court’s
implied power – whether circumstances gave rise to abuse of process or
frustration of the Court’
processes – steps taken pursuant to a
Commonwealth statute will not generally be an abuse of process – necessary
to establish
link between conduct and feared deleterious impact upon proceedings
– also necessary to establish that the remedy is a solution
to the claimed
abuse of process – appeal allowed.
Corporations Act 2001 (Cth), ss
435C, 437A, 437D, 438A, 439A, 440D, 562
Federal Court of Australia Act
1976 (Cth), s 23
Law Reform (Miscellaneous Provisions Act) 1946
(NSW), s 6
Re A J Benjamin Ltd (in liq)
[1969] 2 NSWR 374 referred to
Batistatos v Roads and Traffic Authority of
New South Wales [2006] HCA 27; (2006) 226 CLR 256 referred to
Beneficial Finance
Corporation Limited v Price Waterhouse (1996) 68 SASR 19
distinguished
House v The King [1936] HCA 40; (1936) 55 CLR 499 applied
Jackson
v Sterling Industries Limited [1987] HCA 23; (1987) 162 CLR 612 referred to
Lopez v
Star World Enterprises Pty Ltd (1997) FCA 454 distinguished
Meehan v
Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSL 123 referred
to
Radiancy (Sales) Pty Limited v Bimat Pty Limited (2007) 25
ACLC 1,216 referred to
Re Sydney Formwork Pty Ltd [1965] NSWR 646
referred to
Wingecarribee Shire Council v Lehman Bros Australia Ltd
[2009] FCA 503 referred to
LEHMAN
BROTHERS AUSTRALIA LIMITED v WINGECARRIBEE SHIRE COUNCIL
NSD 457 of
2009
JACOBSON, MIDDLETON AND PERRAM JJ
26 MAY
2009
SYDNEY
THE COURT ORDERS THAT:
2. The orders of the trial judge dated 21 May 2009 be set aside.
3. The respondent’s notice of motion dated 30 April 2009 be
dismissed.
4. The appellant’s costs of the appeal and of the application be paid
by the respondent.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal
Court Rules.
The text of entered orders can be located using the Federal Law
Search on the Court’s website.
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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LEHMAN BROTHERS AUSTRALIA LIMITED
Appellant |
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AND:
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WINGECARRIBEE SHIRE COUNCIL
Respondent |
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JUDGES:
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JACOBSON, MIDDLETON AND PERRAM JJ
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DATE:
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26 MAY 2009
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
INTRODUCTION
1 The appellant ("Lehman") appeals from orders made by Rares J on 21 May 2009 ordering Lehman to produce to the respondent ("the Council") various insurance policies and related correspondence sought by the Council in circumstances to which we will refer below.
2 The primary judge dealt with the matter urgently because the Council wishes to inspect the documents before the second meeting of creditors of Lehman which is now in administration under Part 5.3A of the Corporations Act 2001 (Cth).
3 The meeting of creditors is to take place on 27 May 2009 so that the time within which we are to hear and determine the appeal is even shorter than that which was available to the primary judge.
4 His Honour exercised the power to order Lehman to produce the documents
under
s 23 of the Federal Court of Australia Act 1976 (Cth), and the
"inherent or implied power of the Court to do justice in a matter before it".
5 His Honour called in aid the principles stated by Deane J in Jackson v Sterling Industries Limited [1987] HCA 23; (1987) 162 CLR 612 at 623 that the power conferred by s 23 extends to the making of orders to prevent the abuse or frustration of its processes in relation to the matters coming within the Court’s jurisdiction.
6 Here, the primary judge said that the abuse of process or the event which may frustrate the process of the Court was that at the forthcoming meeting of creditors, the administrators may propose a Deed of Company Arrangement ("DOCA") which would extinguish the entitlement of the Council to claim damages from Lehman and its directors.
7 Mr Coles QC, who appeared for Lehman, did not concede that the primary judge had power to make the orders under s 23, but he did not cavil with the principles stated by the High Court in Jackson v Sterling or in the more recent authorities which have dealt with the question of what amounts to an abuse of process: see, eg, Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 at [9].
8 Rather, the gravamen of Mr Coles’ submissions was that the primary judge failed to identify anything that amounted to an abuse of process or frustration of the process within the established authorities. He relied in particular upon the provisions of Part 5.3A of the Corporations Act and upon the obligation of the administrator to form an opinion as to whether it would be in the interests of creditors for the company to execute a Deed of Company Arrangement, the effect of which may be to extinguish causes of action against the company: see Corporations Act, ss 438A(b), 439A(4)(b).
9 Mr Hutley SC, who appeared for the Council, conceded that the provisions of Part 5.3A contemplate the possibility of the extinguishment of rights of action. However, the substance of his argument was that the abuse of process comes about because, unless the insurance policies are produced to the Council, it will be required to vote on the question of whether to enter into the DOCA, the execution of which would have the effect of extinguishing its rights of action, without being informed of the terms of the insurance cover.
10 Mr Hutley relies in particular upon the special place given in the law of insolvency to the existence of an insurance policy in respect of the claim for which a plaintiff is suing: Re Sydney Formwork Pty Ltd [1965] NSWR 646 at 651; Re A J Benjamin Ltd (in liq) [1969] 2 NSWR 374 at 376; Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSL 123 at 127; see also Corporations Act, s 562 and Law Reform (Miscellaneous Provisions Act) 1946 (NSW), s 6.
11 Thus, the essential question which arises on the appeal is whether the "abuse of process" for which Mr Hutley contends constitutes an abuse of process or frustration of the Court processes within the principles established in the authorities, such as to enliven the power given to the Court under s 23 to order the production of the documents.
THE RELEVANT LEGISLATION
12 Section 23 of the Federal Court of Australia Act provides:
The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.13 There are a number of provisions of Part 5.3A of the Corporations Act which are relevant to the appeal. They are:
435C When administration begins and ends(1) The administration of a company:
(a) begins when an administrator of the company is appointed under section 436A, 436B or 436C; and(b) ends on the happening of whichever event of a kind referred to in subsection (2) or (3) happens first after the administration begins.
(2) The normal outcome of the administration of a company is that:
(a) a deed of company arrangement is executed by both the company and the deed’s administrator; or(b) the company’s creditors resolve under paragraph 439C(b) that the administration should end; or
(c) the company’s creditors resolve under paragraph 439C(c) that the company be wound up.
(3) However, the administration of a company may also end because:
(a) the Court orders, under section 447A or otherwise, that the administration is to end, for example, because the Court is satisfied that the company is solvent; or
...
... 437A Role of administrator(g) the Court appoints a provisional liquidator of the company, or orders that the company be wound up.
(1) While a company is under administration, the administrator:(a) has control of the company’s business, property and affairs; and
(b) may carry on that business and manage that property and those affairs; and(c) may terminate or dispose of all or part of that business, and may dispose of any of that property; and
(d) may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration.
... 437D Only administrator can deal with company’s property(2) Nothing in subsection (1) limits the generality of anything else in it.
(1) This section applies where:(a) a company under administration purports to enter into; or
(b) a person purports to enter into, on behalf of a company under administration;
a transaction or dealing affecting property of the company.(2) The transaction or dealing is void unless:
(a) the administrator entered into it on the company’s behalf; or
(b) the administrator consented to it in writing before it was entered into; or
... 438A Administrator to investigate affairs and consider possible courses of action As soon as practicable after the administration of a company begins, the administrator must:(c) it was entered into under an order of the Court.
(a) investigate the company’s business, property, affairs and financial circumstances; and(b) form an opinion about each of the following matters:
... 439A Administrator to convene meeting and inform creditors(i) whether it would be in the interests of the company’s creditors for the company to execute a deed of company arrangement;(ii) whether it would be in the creditors’ interests for the administration to end;
(iii) whether it would be in the creditors’ interests for the company to be wound up.
...(1) The administrator of a company under administration must convene a meeting of the company’s creditors within the convening period as fixed by subsection (5) or extended under subsection (6).
(4) The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of:
(a) a report by the administrator about the company’s business, property, affairs and financial circumstances; and(b) a statement setting out the administrator’s opinion about each of the following matters:
(i) whether it would be in the creditors’ interests for the company to execute a deed of company arrangement;(ii) whether it would be in the creditors’ interests for the administration to end;
(iii) whether it would be in the creditors’ interests for the company to be wound up;
and also setting out:(iv) his or her reasons for those opinions; and
(v) such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); and
... 440D Stay of proceedings(c) if a deed of company arrangement is proposed – a statement setting out details of the proposed deed.
(1) During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:(a) with the administrator’s written consent; or
(b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes. ...
14 Section 562 of the Corporations Act provides:
562 Application of proceeds of contracts of insurance(1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556.
(2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance.
(3) This section has effect notwithstanding any agreement to the contrary.
15 Section 6 of the Law Reform (Miscellaneous Provisions) Act provides:
6 Amount of liability to be charge on insurance moneys payable against that liability(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person’s liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.
(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up.
(3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.
(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.
(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.
(6) Any payment made by the insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part contained.
(7) No insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured.
(8) Nothing in this section shall affect the operation of any of the provisions of the Workers Compensation Act 1987 or the Motor Vehicles (Third Party Insurance) Act 1942.
(9) Despite subsection (8), this section applies in relation to a policy of workers compensation insurance entered into by an employer (whether entered into before or after the commencement of this subsection), where the employer:
(a) being a natural person, has died, or is permanently resident outside the Commonwealth and its Territories, or cannot after due inquiry and search be found, or(b) being a corporation (other than a company that has commenced to be wound up), has ceased to exist, or
(c) being a company, corporation, society, association or other body (other than a company that has commenced to be wound up), was at the time when it commenced to employ workers to which the policy relates incorporated outside the Commonwealth and its Territories and registered as a foreign company under the laws of any State or Territory and is not so registered under any such law, or
(d) being a company, is in the course of being wound up.
FACTUAL BACKGROUND
16 On 20 December 2007, the Council commenced proceedings No NSD 2492 of 2007 in the Federal Court against Lehman claiming damages for misleading and deceptive conduct under ss 1041E and 1041H of the Corporations Act, and related legislation. The claim arose from misrepresentations said to have been made by directors of Lehman to officers of the Council in relation to investment in collateral debt obligations.
17 The role of those instruments in contributing to what is now described as the global financial crisis may be said to be notorious, although the full magnitude of the effect of CDOs may not have been fully appreciated at the time when the proceedings were commenced.
18 It was not until some nine months later, on 15 September 2008, that directors of the various Australian members of the Lehman Group were advised that the American parent company was preparing to file an application for Chapter 11 bankruptcy protection in the USA.
19 Following upon the global collapse of the international Lehman Group, the various Australian entities, including Lehman, resolved on 26 September 2008 to appoint voluntary administrators under Part 5.3A of the Corporations Act.
20 The first meeting of creditors of Lehman was held on 9 October 2008.
21 Shortly before that meeting, on 23 September 2008, the solicitors for the Council wrote to the solicitors for the administrators requesting them to produce a copy of Lehman’s professional insurance indemnity policy, as well as a copy of the directors and officers’ policy.
22 A second request for the insurance policies was also made by the solicitors for the Council in October 2008, but the administrators’ solicitors declined to produce them.
23 On 19 March 2009 the administrators circulated a report to creditors pursuant to s 439A of the Corporations Act.
24 The Report to creditors stated that it was, in the opinion of the administrators, in the best interests of creditors that they resolve in favour of Lehman entering into a DOCA proposed by a related company of Lehman, Lehman Brothers Asia Holdings Limited. The administrators set out their reasons for forming that opinion.
25 The opinion and the reasons are recorded in [2.11] and [2.12] of the Report. It is unnecessary to set them out in full but it should be noted that these parts of the Report appear to be in conformity with the administrators’ obligations under s 439A(4) of the Corporations Act.
26 The Report contains a lengthy section dealing with the question of insurance. The relevant section is [8.3] which states that Lehman may have the benefit of a number of insurance policies issued by insurers in Australia and overseas.
27 We will set out the salient parts of [8.3] below:
The Company may have the benefit of proceeds of insurance policies which it holds with three separate insurers, both within Australia and overseas. The relevant policies provide professional indemnity cover to the Company and may provide a return to the estate where claims for breaches of professional duties fall within the terms of cover. For the purposes of this Report, and because of the Company’s obligations under the terms of the policies, we refer to the respective insurers as Insurer A, B and C. We have received advice on the various issues that are relevant to assessing whether or not claims are recoverable under the policies. The advice is subject to legal professional privilege and we are not able to report on the substance of the advice. Notwithstanding the above, we are able to report the following:• The Company has notified claims and circumstances of claims to Insurer A, and has sought indemnity for claims settled by the Company prior to our appointment.• Of the settled claims, seven claims totalling $30,306,105 have been submitted to Insurer A under a policy held in 2006/2007, and indemnity has been sought for those claims.
• Insurer A has not confirmed indemnity for the settled claims and is continuing to investigate the claims submitted to it for indemnity and other claims notified to it under the 2006/2007 policy and a subsequent policy held for 3 months in 2007/2008.
• Insurer A has indicated that there are a number of issues to be investigated before it is able to assess whether it has any liability under the insurance policies. Insurer A has also raised several potential exclusions under the policies which may operate to exclude claims in the entirety.
• To date, 33 unsettled claims totalling $215,855,000 have been identified as potentially recoverable under the 2006/2007 policy, and one claim has been identified as potentially recoverable under the 2007/2008 policy. The limit of indemnity under the 2006/2007 policy is $10,000,000 and the limit of indemnity under the 2007/2008 policy is $5,000,000. There is a deductible of $250,000 payable for each and every claim inclusive of legal expenses.
• The Company has notified claims and circumstances of claims to Insurer B. Insurer B is a US company, and cover was provided to the Company under a global arrangement put in place by LBHI to cover its worldwide operations.
• The policies with Insurer B are subject to US law. The Company has obtained advice from US lawyers on aspects of the policy and the application of US law. This advice is subject to legal professional privilege.
• There are a number of complex legal issues and commercial considerations that will need to be taken into account in pursuing a claim for indemnity from Insurer B. It is not presently known whether or not the limits of indemnity for this cover are exhausted by claims made in the US and/or elsewhere LBHI for its global operations.
• The Company has not identified any claims that are recoverable under the policy issued by Insurer C.
28 The key terms of the proposed DOCA are set out at [12.3] of the Report. The DOCA provides for a contingent Creditor Deed Pool of $35 million which would be available to meet the claims of Lehman and other contingent creditors. This fund would be contributed to from the assets of LB Australia.
29 For present purposes, the most important provisions of the DOCA are certain releases to be provided by creditors to Lehman and its directors. These are described in [12.3] as follows:
Releases are also to be provided by the creditors to:> The Company (Lehman Brothers Australia Limited)> The Directors, Company officers and employees; and
> Lehman Brothers affiliated entities, including subsidiaries of LBA, LB Inc and all subsidiaries including Lehman Brother Asia.
30 On 30 April 2009, the Council filed a notice of motion seeking production of the insurance policies and related documents.
31 On 8 May 2009, Rares J delivered a judgment on that motion: see Wingecarribee Shire Council v Lehman Bros Australia Ltd [2009] FCA 503. His Honour ordered that the Council have leave pursuant to s 440D(1)(b) of the Corporations Act to proceed in the matter to the extent necessary to determine the application for production of documents.
32 The explanation for the order made by his Honour appears to be contained in [10] of his reasons as follows:
In my opinion, the question whether a respondent or defendant has assets that are available to satisfy a judgment and whether there is another party who may be liable, such as an insurer the subject of a charge under s 6 of the Law Reform (Miscellaneous Provisions) Act are matters which are within the power of the Court to require to be disclosed in the proceedings themselves: see Jackson v Sterling Industries Limited[1987] HCA 23; ; (1987) 162 CLR 612 at 622-623 per Deane J, where he discussed the ambit of s 23 of the Federal Court of Australia Act and the power of the court to grant relief in the nature of Mareva orders, including the disclosure of assets by a defendant or respondent.PRELIMINARY OBSERVATIONS
33 There are a number of preliminary matters that should be mentioned in light of the submissions of the parties.
34 It is not contended that the documents are relevant to any matter in the proceedings. As we have indicated, the respondents rely on s 23 of the Federal Court of Australia Act to order the production of the insurance documents.
35 It is also important to note that no application has been made under s 440D(1)(b) of the Corporations Act for leave to proceed other than in respect of the application for the production of the insurance documentation. Therefore the approach taken by Olney J in Lopez v Star World Enterprises Pty Ltd (1997) FCA 454 is not of application here. Olney J was there considering (admittedly in the context of a representative proceeding) a leave to proceed application where the existence and ambit of insurance would be a relevant matter in the determination of that application.
36 The decision in Beneficial Finance Corporation Limited v Price Waterhouse (1996) 68 SASR 19 is also of no direct application to the issue before us. That case concerned an application for discovery against a solvent defendant, and involved no consideration of s 23 of the Federal Court of Australia Act, nor the application of s 6 of the Law Reform (Miscellaneous Provisions) Act. In this appeal the respondents rely heavily upon the width of s 23 of the Federal Court of Australia Act and the operation of s 6(4) of the Law Reform (Miscellaneous Provisions) Act, giving to the Council a direct right of action against insurers.
37 For the purposes of this appeal, we accept that his Honour has power to make the orders for production, but consider the issue from the point of view of the exercise of his discretion. In this context, we need to consider whether his Honour misdirected himself so as to fall into error into reaching his decision: see House v The King [1936] HCA 40; (1936) 55 CLR 499, 505 and 507.
38 As we have indicated, the parties do not dispute that the principles involved in exercising the powers under s 23 of the Federal Court of Australia Act were explained by the High Court in Jackson v Sterling. The primary judge specifically relied heavily upon passages taken from that decision: see [23]-[25]. Reliance was also placed by the respondent on the comments of the High Court in Batistatos v Roads and Traffic Authority at [9]. It is the application of these principles to the circumstances before the Court that is in dispute.
39 There seems to us to be a number of important observations of his Honour which indicate his approach:
[26] There is no suggestion here that the administrators have the purpose of interfering with or frustrating the ordinary execution of the Court’s orders. But the effect of implementation of a deed of company arrangement as opposed to a liquidation, can radically affect the ordinary rights of creditors. ... ... [28] In a case where administration under Pt 5.3A or liquidation intervenes and so affects the rights of an applicant or plaintiff against a party sued by it for relief, the court must be careful to ensure that it both maintains the statutory scheme for administration of insolvent companies and preserves such rights that the plaintiff or applicant may otherwise possess that might exist outside that scheme or that might be arguably said to exist outside that scheme. One such right is, of course, the independent right given by s 6 of the Law Reform (Miscellaneous Provisions) Act. ... [39] In my opinion, the question whether there is insurance that, in fact, responds or there may be a charge that the council is entitled to under s 6 of the Law Reform (Miscellaneous Provisions) Act are matters which it is entitled, as a litigant in this Court, to know in the interests of justice before it has to determine what it will do in Lehman Brothers’ second creditors meeting. It is not the council’s fault that the accident of insolvency and administration has overtaken Lehman Brothers in the course of this litigation. Rather, it is a circumstance which must be taken into account. I am also conscious that very substantial debts are owed to related companies of Lehman Brothers. Those companies are aware of, at least, some of the insurance arrangements the subject of the council’s present application, because they are parties to those policies. [40] Part of the relief claimed by the council in the principal proceedings is in relation to allegedly misleading statements by Lehman Brothers. In those circumstances, one Lehman Brothers’ related company is proposing a deed of company arrangement that would have the effect, on the evidence before me, of seeking to destroy the creditors’ right to sue directors and officers of the company for breaches of their obligations. Such a right may be capable of being enforced directly against the directors and officers in an action under the Trade Practices Act 1974 (Cth) or its analogues in State Fair Trading Acts: Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553 at 566-567 [40] – [42] per Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ. ... [44] The effect of the administration, as Pt 5.3A contemplates, will be to bind all creditors, including the council, in the event that a deed of company arrangement is entered into and is not terminated. Because that may produce outcomes that possibly may impact on the conduct of the current proceedings in a way that is not necessarily the same as in the ordinary course of every other piece of litigation, I am of opinion that it is appropriate to require production of the insurance information sought having regard to considerations to which I have referred: Jackson [1987] HCA 23; 162 CLR 612; Batistatos [2006] HCA 27; 226 CLR 256; Lopez [1997] FCA 454. ... [47] The directors and officers insurance policy is directly at threat by the proposal in Lehman Brothers Asia Holdings’ draft deed of company arrangement, referred to in the administrators’ report. Prima facie, for the protection of the integrity of the process of this Court and the possible actions which the council may have, I am of opinion that ought to be produced. In addition, it may or may not provide a source for a settlement that may be able to be applied, among other things, in an administration. Again, I am satisfied that there is no difficulty in the Lehman Brothers being required to produce the notifications, to insurers A and B, that were made in late 2007, referred to in its solicitor’s affidavit.40 Before going further in relation to his Honour’s approach, we observe that his Honour and the parties analysed the operation of Part 5.3A of the Corporations Act which was argued by the appellants to be a matter to guide the exercise of discretion. There is no doubt his Honour considered the operation of Part 5.3A. Nothing we decide for the purpose of this appeal should indicate that the power under s 23 is necessarily confined by the fact that Part 5.3A is engaged.
CONSIDERATION OF THE ABUSE OF PROCESS QUESTION
41 There is no doubt that this Court has a power to prevent and to remedy abuses of its processes. That power extends to prevent misuse by litigants of its processes to the detriment of others and to the protection of its own processes from interference.
42 The power has been held to be sufficiently extensive to encompass the making of an order requiring a respondent to state its asset position: Jackson v Sterling at 622-623 per Deane J.
43 However, it is to be kept steadily in mind that the power arises from the existence of an apprehended or antecedent abuse of process. It is not a free ranging power to compel respondents to produce evidence as to their assets where it might be convenient to the other party to the litigation so to order.
44 The power to require the evidence as to a respondent’s assets is a manifestation of the power conferred on the Court by s 23 of the Federal Court of Australia Act. As such, its ambit is in turn affected by other Commonwealth laws. Where a Commonwealth statute expressly or by necessary implication permits steps to be taken which, otherwise, would be an abuse of process, this will generally mean that the taking of such steps cannot, per se, be an abuse of process: cf Radiancy (Sales) Pty Limited v Bimat Pty Limited (2007) 25 ACLC 1,216 at 1,229 per White J.
45 Thus, in this case, it is not sufficient to constitute an abuse of process that the proposed DOCA, if passed, may bring to an end the rights of the Council. Parliament intended, by Part 5.3A of the Act, that a DOCA might have just such an effect and the ordinary operation of that Part cannot, without more, constitute an interference with the Council’s proceedings before this Court which can be remedied pursuant to s 23.
46 It thus becomes important to identify both the impugned conduct said to be an abuse and the effect of that conduct upon the proceedings in this Court. As to the former, it should be accepted, as Ms Hutley submitted, that an abuse of process may be established even though its perpetrator may be innocent in design. So much flows from the need to preserve the integrity of the proceedings. As to the latter, it is important to identify with clarity the cause of that effect.
47 The learned primary judge identified at [40] the conduct constituting the abuse as the proposal by Lehman Bros Asia Holdings of the draft DOCA, in circumstances where that draft DOCA, if passed, would release the respondent and its directors and officers from liability to creditors, including the Council.
48 In this Court, a slightly different tack was taken. Mr Hutley identified the abuse of process as being constituted by the opinion formed by the administrators that it was in the interests of the creditors to approve the Lehman Bros Asia Holdings DOCA in circumstances where the Council did not know sufficient information from the administrators’ report to creditors to decide whether to accept the DOCA (and its consequent elimination of the Council’s rights in exchange for a share of the pool) or to vote against it and to take the rights inuring to it on a winding up.
49 The opinion formed by the administrators was required to be formed by
s 439A(4)(b)(i). The exercise of that function by the administrators was
not impugned by the Council.
50 Instead, the Council’s case was that it was the formation of the opinion and the simultaneous failure to provide adequate information about the respondent’s insurances to permit the Council to make a decision which constituted the abuse. The case is not met, at least at a theoretical level, by an argument that Part 5.3A was simply taking its course. The alleged failure to provide adequate information was not part of the inevitable operation of Part 5.3A. That said, we do not think that the formation of the opinion can be part of the abuse of process. The abuse, if abuse there was, consisted in the failure to provide adequate details of the insurance agreements.
51 It is then necessary to establish a link between the conduct said to constitute the abuse of process and the feared deleterious impact upon the proceedings.
52 It is also necessary to establish that the remedy nominated is, or can be seen as, a solution to the identified abuse of process. It is at this point that the Council’s case encounters insuperable difficulties. The only matter which could be an abuse is the failure to provide adequate information about the respondent’s insurance arrangements. The formation of the opinion was authorised by law and is not impugned.
53 The harm to the proceedings is their practical termination should the DOCA be passed. It needed to be shown that there was some causal link between the two. By causal link, we would not necessarily wish it to be seen as requiring an applicant in the position of the Council to show that the harm to the proceedings was the common sense consequence of the impugned behaviour. There does, however, need to be some rational connection between the two.
54 There was no evidence to suggest that the draft DOCA was likely to be passed because of the failure by the administrators to provide the information about the respondent’s insurance arrangements. Mr Hutley submitted that the DOCA needed to be approved by the majority of the creditors by poll and not just by value. But there was nothing to indicate that the alleged absence of sufficient information had any likely impact on the outcome of that poll.
55 It might have been possible to seek to show that a substantial number of creditors might have voted a particular way had fuller information been available about those arrangements, but no such course was taken.
56 Mr Hutley submitted that essentially, there was a catch 22 situation. The Council could not say what effect the insurance documents would have had on the voting because it was not known what those documents said. However, that conundrum was not conceptually relevant. What was conceptually relevant was the need to show that a substantial number of creditors would at least have considered voting against the DOCA if the insurance arrangements were available.
57 The problem is made more manifest when one turns to the remedy proposed by the Council to the apprehended abuse. There is, as far as we can see, no connection between the provision to the Council of the respondent’s insurance arrangements and the prevention of the termination of the Council’s proceedings in this Court should the DOCA be passed.
58 In truth, if the provision of insufficient information by the administrators could constitute an abuse of the processes of this Court, the remedy would have been to impede the adoption the DOCA. Of course, that observation directs attention to the desirability of such questions not being decided in the various courts in which creditors’ claims subsist. In that regard, it is to be noted that the Court supervising the administration has a power to set aside a DOCA under s 445D(1)(f)(i) if the DOCA operates unfairly or prejudicially to one or more creditors. That court is much better placed than this one to consider arguments about unfair behaviour in the administration.
59 For those reasons we do not think that the abuse identified on appeal is substantiated. We do not think that the abuse identified by the learned primary judge is substantiated either. Even if the conduct of the other Lehman companies were shown to be directed at terminating the Council’s claims through the adoption of the DOCA, it is impossible to see why that might justify an order that this respondent – whose administrator his Honour accepted to be acting in good faith – should produce its insurance arrangements.
60 The abuse identified by the learned primary judge might have justified an injunction against those other parties (although we explicitly make no such finding), but that course could not be contemplated in those parties’ absence, nor could it be remedied by the production of the insurance documents ordered by the primary judge.
61 There was therefore no abuse of process or interferences with the processes of the Court. His Honour erred in concluding that there was, and misdirected himself in failing properly to analyse the position as set out above.
CONCLUSIONS
62 For the above reasons the Court will order that:
1. The appeal be allowed.
2. The orders of the trial judge dated 21 May 2009 be set aside.
3. The respondent’s notice of motion dated 30 April 2009 be dismissed.
4. The appellant’s cost of the appeal and of the application be paid by
the respondent.
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Solicitor for the Appellant:
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Clayton Utz
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Counsel for the Respondent:
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Mr N. Hutley SC with Mr T. M. Mehigan
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Solicitor for the Respondent:
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Piper Alderman
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URL: http://www.austlii.edu.au/au/cases/cth/FCAFC/2009/63.html