LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liquidation) [2021] FCA 324

LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liquidation) [2021] FCA 324 is an important decision that considered the Harman obligation and whether an assignee of a claim requires leave of the court to rely on documents in separate proceedings, in circumstances where the documents were obtained via examination summonses for the purpose of commencing those separate proceedings.

Background

316 Group Pty Ltd (In Liquidation) (the company), its liquidator and LCM Operations Pty Ltd (LCM), entered into an assignment deed regarding potential claims available against Rabah Enterprises Pty Ltd (Rabah) in the winding up of the company.

LCM applied to the Federal Court as an “eligible applicant” under ss 596A and 596B of the Corporations Act 2001 (Cth) to issue examination summonses and related orders for production. The purpose of the proposed examination was to investigate the quantum and prospects of the claims against Rabah.

On 9 September 2020, LCM commenced proceedings in the Supreme Court against Rabah, pursuing the claim for a debt owed to the company but assigned to LCM. In support of the Supreme Court proceeding, LCM relied on the documents produced pursuant to the orders for production.

LCM then applied by interlocutory application to seek leave, if leave was required, to be excused from the operation of the implied undertaking found in Harman v Secretary of State for Home Department [1983] 1 AC 208 (Harman) in relation to the documents produced pursuant to the orders for production. The Harman obligation provides, at paragraph [96]:

“Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.”

The “eligible applicant”

Stewart J considered authorities such as Re Southern Equities Corporation Ltd (in liq); Bond & Caboche v England (1997) 25 ACSR 394 (Re Southern Equities), which concluded that the liquidator would be entitled to use any documents produced in answer to an examination summonses without being required to obtain leave of the court. Further, Derrington J in Re Endeavour Securities (Australia) Ltd (in liq) [2020] FCA 1773 concluded that the same principle in Re Southern Equities would apply to an “eligible applicant” who obtained documents in the course of an examination and intended to use them for the purpose of bringing claims which were the subject of the examination.

Rabah submitted that LCM is in a different position to that of a liquidator and that unlike a liquidator, has no necessary relationship with the company, owes no duties to the company or to the creditors, and is not subject to the same duties to the court as a liquidator is. As such, Rabah submitted that LCM requires leave of the court to use the documents even if the purpose for which the documents are sought to be used is the purpose for which they were obtained.

The affidavit relied upon by LCM provided that the purpose of the proposed examinations was to investigate the quantum and prospects of the proposed claim against Rabah. An officer of LCM also deposed that the documents produced in response to the orders for production are relevant to the claim that LCM has against Rabah.

Stewart J concluded, at paragraph 27, that the purpose for which the documents were sought to be used by LCM was the very purpose for which they were obtained under the compulsory process of the Court. Accordingly, no leave was required.

Abuse of process or private purpose

Rabah submitted that the examinations and summonses by which the documents were produced were to pursue a private purpose and LCM was not in a position analogous to that of a liquidator who uses such documents for purposes associated with the liquidation of the company and for the benefit of creditors.
Rabah also submitted that it was an abuse of process as the predominant purpose of the examinations and summonses was to pursue the private interests of LCM and not for the purpose of benefiting the corporation, its contributories or its creditors (citing Re Ne Tel Ltd (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; 145 FCA 176).

Stewart J rejected the submissions due to the fact that the liquidator and the creditors retained a 15% interest in the claim according to the assignment deed. His Honour was of the view that there is clearly a mixed purpose, being in part satisfaction of LCM’s own interests and in part the interests of the company and its creditors. In any event, His Honour at paragraph 38 concluded that the submissions as to abuse of process had no bearing on the decision to be made as to whether leave was required. Rather, they would be relevant to a decision whether to grant leave to LCM to use the documents in the event that such leave is required.

Decision of the Federal Court

Stewart J concluded that LCM did not require leave of the Court to use the documents produced. The Court ordered that LCM is entitled to use the documents produced in the examination proceeding in the Supreme Court proceeding and Rabah was to pay LCM’s costs of the interlocutory application.
It is clear from the decision that where an assignee of a claim obtains documents by way of examination summonses for the purpose of commencing separate proceedings, they do not require leave of the court to rely on the documents in those separate proceedings.

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