Examinees cannot “fish” in Babcock & Brown’s pond

Articles Written by Joseph Scarcella (Partner), Edwin Fah (Senior Associate), Geoffrey Sykes (Associate), Olivia Gerhardy (Law Clerk)
Dip pen on an angle touching a black surface with a black background

On 18 August 2022 Justice Markovic of the Federal Court dismissed the application of a litigation funder and its director (the Applicants) for access to the confidential affidavit in support of, and transcript of, the hearing in which orders for examinations and production were made. The Court confirmed the principles applying to such applications in finding that the Applicants had not established an arguable case, in the absence of the confidential material, that the orders for examinations and production should be set aside or discharged.

Takeaway points

The Court will not allow an applicant to “fish” for a case in seeking to have orders for examination and production set aside. An arguable case must first be made on the currently available evidence (that is, not reliant on confidential material filed by a liquidator in support of an examination order), before any consideration is given to whether the confidential material should be disclosed.  

The ruling confirms that a party seeking to set aside orders for examination and production needs to establish the merits of its case (on the available evidence) before the Court will consider allowing it access to the confidential material.

In this matter, the Court upheld that a liquidator is able to examine a litigation funder who is financing claims against the liquidator and the insolvent company.

Background

Summonses for examination and production orders were issued against the Applicants (the Orders). The liquidator’s affidavit in support of his application is confidential unless the Court orders otherwise and the parties agreed that the transcript of the hearing is also confidential (the Confidential Material).

The Applicants sought to have the Orders set aside or discharged. As part of that application, the Applicants also sought access to the Confidential Material.

The test for access is that “the Applicants need to show an arguable case for their discharge or setting aside and, if they do, that it is in the interests of justice to permit access to the affidavit”.[1]

The Judgment

The Applicants raised several grounds on which they contended the Orders should be set aside or discharged, including as follows:

Inconsistency on the face of the Orders

The Applicants asserted that there was a technical inconsistency within the defined scope of the examinations and the production orders.  The Court stated that such an inconsistency (even if it existed) could be resolved in the conduct of the examination.

The issuing of the examinations is an abuse of process

The Applicants alleged that the examinations and productions orders were an abuse of process.  These sub-grounds fell into three broad categories, being:

  • The liquidator and the Applicants are involved in separate legal proceedings involving the liquidation of Babcock & Brown and the examinations may be used as a dry run for cross examination;
  • The liquidator, as part of those separate proceedings, has other methods of acquiring the same information sought by way of the examinations and production orders; and
  • The credibility of examinees was in issue.

The Court stated that:

  • Obtaining information that might be useful in those separate proceedings between the parties is a legitimate use of the powers granted to the liquidator;
  • The availability of other means of obtaining the information sought does not establish that the course the liquidator has adopted (and which is open to him) is an abuse of process; and 
  • There was no evidence before the Court to support the other complaints.

The issuing of the examinations and production orders exceeds the scope of the “examinable affairs” of the company

  • The Court confirmed that the scope of the “examinable affairs” of a company is very wide, encompassing any act or thing done by or in relation to the company, or its business or property when being wound up, as well as any conduct of the liquidator and the director of the funder of separate litigation against the liquidator, who may be able to give information about matters relating to those other proceedings, which are things done in relation to the company while being wound up.

The liquidator waived his rights to confidentiality of the affidavit

Ultimately, the Court concluded that on the basis of the evidence before it, the Applicants did not have any realistic prospects of success.  As such, the Court was not required to consider the next step, being whether allowing access to the Confidential Material would be in the interests of justice.


[1] Lombe, in the matter of Babcock and Brown Ltd (in liq) [2022] FCA 957 at [33].

 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

Related insights Read more insight

Section 588FDA: indirect benefits to directors risk voiding a mortgage transaction

A recent Federal Court decision provides a useful distillation of the key principles that apply to unreasonable director-related transactions under s 588FDA of the Corporations Act.

More
Voidable transactions: act within the statutory time limit

A Federal Court decision, handed down on Friday, is a blunt reminder that the statutory limitation period in section 588FF(3) of the Corporations Act 2001 (Cth) needs to be adhered to strictly, and...

More
Liquidator's remuneration vs employee creditors: who gets priority to circulating assets?

In this decision, the Court of Appeal of the Supreme Court of NSW considered the interplay between the priority regimes under ss 556 and 561 of the Corporations Act 2001 (Cth) (Act) in resolving a...

More