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Commercial Litigation & Insolvency News Alert: But I haven't deleted my internet history - The right to privacy and s 434B

News Alert 15 May 2014

The recent case of Matthews v Clifton [2014] FCA 415 highlights the difficulties that liquidators may face when seeking to recover company information from IT assets which also house personal confidential data belonging to the company’s employees. While entitled to inspect all material and assets of the company for the benefit of the creditors, a liquidator must tread lightly if there is the potential for personal information of a company officer to be made public.

Facts

IWH Pty Ltd (IWH) and Scarce Builders & Developers Pty Ltd (Scarce Builders) were placed into administration and then by resolution of creditors into liquidation. Subsequently, receivers were appointed to each of the companies.

The plaintiff liquidator sought possession of four computers (Computers) in the possession of the receivers (who were named as defendants), applying to the court for orders under s 434B(1) and 511(1) that he have unfettered access to the information on the Computers. The defendants did not oppose the plaintiff taking possession of the Computers, however the principals of the companies (cross-claimants) sought and were granted leave to intervene in the proceedings and filed a cross-claim against the liquidator seeking relief for the protection of their confidential information which was also stored on the Computers.

The key arguments raised by the parties are as follows:

  • The liquidator contended that any document created by the principals in their capacity as an employee will be owned by the company under the Copyright Act 1968 (Cth);
  • The cross-claimants sought to rely on the Privacy Act 1988 (Cth), arguing that their personal emails and documents were defined ‘as personal information about an individual’ and that exemptions to disclosure of that information in the Privacy Act did not apply;
  • The cross-claimants relied primarily on the equitable protection of confidential information, a protection that is well established in the common law and rests on the obligations of conscience arising from the circumstances in which the information was communicated or obtained.

Decision

Justice White of the Federal Court granted the orders sought by the cross-claimants on the principle of equitable protection of confidential information, citing the following four considerations:

  • It is possible for the Court to make an order by which the material that is the subject of a claim of confidentiality or privilege be identified and the cross-claimants’ interests be protected;
  • Although lacking specificity in relation to individual documents, the cross-claimants identified categories of documents said to have the requisite confidentiality;
  • Claims that the Computers contain material in respect of legal professional privilege are not lightly to be ignored; and
  • A claim that the Computers of a company contain confidential material of a more general kind is not implausible as it is commonplace for owners of family-owned companies to ignore the distinctions of legal identity in the day to day running of their businesses and in their personal affairs.

The Judge also noted that the provisions in the Copyright Act did not apply and that, due to a lack of substantial submissions from Counsel on the issues surrounding The Privacy Act, his Honour did not express a concluded view on its operation in these circumstances.

The case serves as a practical example of the issues that may arise for liquidators regarding access to company information when it is stored in an intertwined way with personal information on a company asset. While it is within the ambit of a liquidator’s powers to request control over company property that is in the possession of a receiver, equity will not allow information, being confidential to the company officers, to be used by a liquidator for any purpose under the Corporations Act.


Kirsten Farmer, Partner
Sydney

Guy Moloney, Senior Associate
Sydney

Julian Whealing, Solicitor
Sydney

News Alert 15 May 2014
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