LCM: Considering the interaction between the Harman undertaking and assigned actions
Posted on May 12, 2021
In the recent decision of LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liq)[1] (LCM), the Federal Court of Australia considered the interaction between the Harman undertaking, documents obtained in the course of examinations, and whether assignees of actions can use and rely upon those documents in subsequent proceedings.
Facts
The key facts in LCM were as follows:
- The Liquidator of 316 Group Pty Ltd (Company) assigned potential claims which the Company held against Rabah Enterprises Pty Ltd (Rabah), including a debt claim, to LCM Operations. Assignment of the potential actions was pursuant to section 100-5 of the Insolvency Practice Schedule (IPS).
- In order to investigate the assigned claims, LCM Operations commenced examinations and sought production of certain documents from Rabah. LCM Operations was granted leave to uplift, inspect and copy the documents produced.
- LCM Operations then commenced a debt claim against Rabah in the New South Wales Supreme Court, using and relying upon the documents produced during the examinations.
Rabah contended that LCM Operations could not rely upon the produced documents in the debt claim proceedings, as a result of the Harman undertaking. The Harman undertaking provides that information or documents disclosed in litigation cannot be used for any collateral or ulterior purpose.
LCM Operations applied to the Federal Court for leave (if required) to use and rely upon the documents obtained in the examinations in the debt claim proceedings.
Decision
The issue for the Court to consider was if LCM Operations required (and if so, should be granted) leave to use and rely upon the documents in the debt claim proceedings against Rabah.
In reaching his decision, Stewart J considered:
- the general purpose of examinations and production orders; and
- the subsequent use of documents.
The evidence before the Court indicated that the purpose of the examinations and production order was to investigate the quantum and prospects of the proposed debt claim against Rabah, and as such, the purpose for which the documents were produced was the same.
On that basis, the Court held that leave from the Harman undertaking was not required, and that LCM Operations could rely upon and use the documents obtained through the examinations in the debt claim proceedings.
The Court also considered if the documents were produced for a private purpose and if it was an abuse of process for LCM Operations to use those documents, where the predominant purpose was not to benefit the Company.
The Court held that the production of documents and subsequent debt claim proceedings were not for a private purpose, as the Company and its creditors retained a substantial interest in the debt claim pursuant to the terms of the assignment deed.
Key takeaways
The decision in LCM confirms an important aspect of the assignment regime under the IPS, which was introduced in 2017. In particular, documents obtained through examinations (brought for the purpose of investigating potential claims) can be relied upon in the event those proceedings are commenced.
Lynch Meyer’s Insolvency and Restructuring Team are here to assist with any enquiries related to the function of the IPS, or any other aspect of Corporations or Bankruptcy Law. Please contact Alice Carter of Lynch Meyer Lawyers’ Insolvency and Restructuring Team if you wish to discuss.
[1] [2021] FCA 324.
