Ariff v Fong [2007] NSWCA 183 | Case summary

Ariff v Fong [2007] NSWCA 183 | Case summary | Zoe

Headnote Facts On 12 May 2006, the opponent, Mr Fong, was appointed by the Australian Securities and Investments Commission (ASIC) as an eligible applicant on behalf of the Berjaya group of companies for the purposes of conducting an examination of the affairs of the corporate claimants pursuant to Pt 5.9 of the Corporations Act 2001 (Cth) (the Corporations Act). The Berjaya group of companies holds approximately 97 per cent of the issued shares in the company CarLovers Carwash Limited, being one of four companies in the CarLovers group and was the major unsecured creditor. The first claimant, Mr Ariff, is the deed administrator of each of the companies in the CarLovers group, having been appointed by the directors of the companies in the group on 10 July 2003, as a voluntary administrator pursuant to s 436A of the Corporations Act. In May 2006, Mr Fong caused to be issued examination summonses against Mr Ariff, Jo Drysdale and John Sewerle. Subsequently, on 5 July 2006, Mr Fong caused to be issued a number of Notices to Produce and Subpoenas. The claimants, by an Amended Interlocutory Process filed in court on 24 July 2006, have sought a number of orders, including orders that various of the examination summonses be set aside and also that the Notices to Produce and Subpoenas be set aside. By way of a preliminary to the determination to set the examination summonses aside, the claimants also sought an order pursuant to s 596C(2) of the Corporations Act that the affidavit in support of Mr Fong's application to issue summonses for examination to Mr Ariff, Ms Drysdale and Mr Sewerle be made available for their inspection. The claimants contended that it was arguable that the examination summonses were issued for an improper purpose, namely, to exert improper commercial pressure on Mr Ariff to force him to hand back control of the CarLovers group to the shareholders, to terminate the deeds of company arrangement prior to them being performed to completion and to compromise his claim for outstanding fees. Mr Fong submitted that the claimants' complaints were essentially that he was acting to embarrass Mr Ariff and that he was pursuing Berjaya's interests in seeking to have Mr Ariff return the control of the CarLovers group to Berjaya without the payment of his remuneration. Mr Fong stated there was typically embarrassment caused by the examination of a company's affairs and that Mr Ariff's remuneration was protected by an order of the court. The application for inspection of the affidavit was heard by Barrett J, who, on 3 October 2006, dismissed the application finding that an arguable case of improper purpose had not been established. The claimants sought leave to appeal and to appeal from the trial judge's order. Held by the Court (Beazley, Giles and Santow JJA):

25 July 2007 Stuart Karim Ariff & Ors v Ian Kim Seng Fong Judgment 1 THE COURT: The issue on this appeal is whether the claimants have established that they have an arguable case that examination summonses that had issued against them at the instance of the opponent (Mr Fong) were issued for an improper purpose, so as to constitute those proceedings an abuse of process. 2 On 12 May 2006, Mr Fong was appointed by the Australian Securities and Investments Commission (ASIC) as an eligible applicant on behalf of the Berjaya group of companies for the purposes of conducting an examination of the affairs of the corporate claimants pursuant to Pt 5.9 of the Corporations Act 2001 (Cth) (the Corporations Act). The Berjaya group of companies holds approximately 97 per cent of the issued shares in the company CarLovers Carwash Limited (CCL), being one of the companies in what will be referred to as the CarLovers group. 3 There are four companies in the CarLovers group: CCL, The Carwash Kings Pty Limited (KK), CarLovers Carwash (Aust) Pty Limited (CCA) and CarLovers (Maroochydore) Pty Limited (CM). The first claimant (Mr Ariff) is the deed administrator of each of the companies in the CarLovers group, having been appointed by the directors of the companies in the group on 10 July 2003, as a voluntary administrator pursuant to s 436A of the Corporations Act. 4 In May 2006, Mr Fong caused to be issued examination summonses against Mr Ariff, Jo Drysdale and John Sewerle. 5 It appears that Jo Drysdale is a member of Mr Ariff's staff. John Sewerle is a member of one of the Committees of Inspection. We are uncertain whether an examination summons was issued against Yazni Ariff. 6 Subsequently, on 5 July 2006, Mr Fong caused to be issued a number of orders for production and subpoenas. We will return to the identity of the recipients of these documents and the nature and extent of the documents that were required to be produced pursuant to them. 7 The claimants, by an Amended Interlocutory Process filed in court on 24 July 2006, sought a number of orders, including orders that various of the examination summonses be set aside and that the notices to produce and subpoenas be set aside. In addition, the claimants sought an order pursuant to s 596C(2) of the Corporations Act that the affidavits in support of Mr Fong's application to issue summonses for examination to Mr Ariff, Ms Drysdale and Mr Sewerle be made available for their inspection. There is in fact only one affidavit. 8 The application for inspection of the affidavit was heard by Barrett J who, on 3 October 2006, dismissed the application. The claimants seek leave to appeal and, if granted, to appeal from that order. The summons for leave to appeal and the appeal have been heard concurrently.

(2) The affidavit is not available for inspection except so far as the Court orders." 11 The claimants contend that the examination summonses were issued for an improper purpose, namely, to exert improper commercial pressure on Mr Ariff, to force him to hand back control of the CarLovers group to the shareholders, to terminate the deeds of company arrangement prior to them being performed to completion and to compromise his claim for outstanding fees. The claimants have sought access to the affidavit in aid of establishing that case. The parties agreed that in order to grant access to the affidavit, the Court must be satisfied that the claimants have an arguable case that the summonses had been issued for an improper purpose or involved an abuse of the court's processes. 12 As the principles which govern the application were not in dispute, it is not necessary to refer to them in detail. However, an overview is appropriate. It is convenient to start with the principles that govern the question whether proceedings have been brought for an improper purpose, thus constituting an abuse of process. Those principles are to be found in Williams & Ors v Spautz (1992) 174 CLR 509; [1992] HCA 34. 13 In that case, a lecturer at a university had commenced an action for wrongful dismissal. He also laid informations against various officers of the university, alleging a number of offences, including criminal conspiracy to defame and conspiracy to injure him without justification and by illegal means. Certain of the respondents to those informations sought a declaration that the prosecutions were an abuse of process. It was held that the prosecutions were an abuse of process and were properly stayed. Mason CJ, Dawson, Toohey and McHugh JJ stated, at 518, that it was well established that Australian superior courts have inherent jurisdiction to stay proceedings which are an abuse of process. Their Honours considered, at 522, that the power to stay must extend to the prevention of an abuse of process resulting in oppression, even if the party who commenced the proceedings has, or is to be assumed to have, a prima facie case. 14 Their Honours, at 526, outlined the boundaries of abuse of process. They rejected the notion that there was an abuse of process simply because a litigant had a purpose in bringing the proceedings which was not within the scope of those proceedings. They observed that a litigant might have the intention of bringing proceedings to a successful conclusion, so as to take advantage of an entitlement or benefit which the law gives that litigant. In such a case, there would be no abuse. 15 Their Honours stated, however, that it was otherwise when the purpose of bringing the proceedings was not to prosecute them to a conclusion, but to use them as a means of obtaining some advantage for which they were not designed: see In Re Marjory [1955] Ch 600; or some collateral advantage which was beyond what the law offers: see Goldsmith v Sperrings Ltd [1977] 1 WLR 478 at 498-9; Varawa v Howard Smith Company Ltd (1911) 13 CLR 35 at 91; [1911] HCA 46. 16 Their Honours held that the court looks to the predominant purpose in bringing the proceedings and that the onus of satisfying the court that there was an abuse lay on the party alleging it and that the onus was "a heavy one": see Goldsmith v Sperrings Ltd at 498. 17 The question for determination on this appeal is not whether the claimants have established that the examination summonses had been brought for an improper purpose. This matter is concerned with a prior question as to whether there is an arguable case that there was an abuse. In Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69, the Full Court of the Federal Court of Australia stated, at 94, that the purpose of making an order under s 596C, making an affidavit available for inspection was not so as to enable a party to "fish" for information that would establish that the examination summons had been issued for an improper purpose. Rather, "There must be material before the Court from which it appears that the applicant has an arguable case, to which the material is relevant, before the discretion should be exercised in favour of that applicant." 18 The Court further observed that once an arguable case had been made out, the discretion would normally be exercised in favour of the application. The Court also considered that there could be no objection to the use of the examination procedure on the application of a creditor whose purpose was to ensure that the creditor's debt was paid. Their Honours stated at 93: "After all, if the creditor were unsecured the interests of that creditor are no different from the interests of all other creditors who share rateably in the distributable assets of the company. Even in a case where the creditor was a secured creditor, the fact that the purpose of the examination was to aid the ultimate recovery of the secured debt, by, for example, the ascertaining of the existence of assets, would operate to the benefit of the company by ensuring that it paid out the secured creditors and that there was then revealed what other assets (if any) were available for distribution to unsecured creditors." 19 In Excel Finance Corp Limited, a receiver and manager appointed by a trustee for debenture holders was authorised by the then equivalent of ASIC to seek an examination order against Mr Worthley, who, shortly after the examination summons had issued, and before the examination was conducted, was sued (as one of the partners of Excel's auditors) by the trustee on behalf of those debenture holders for damages. Mr Worthley claimed that the application for the issue of the summons was an abuse of process because the purpose in issuing it was to enable the receiver to gather evidence in aid of the trustee's proceedings. Their Honours considered, at 94, that the commencement of the proceedings against the director: "… raised, without more , the possibility that [the trustee] had sought the examination summons … for an improper purpose." (Emphasis added) 20 Their Honours considered that the contents of the affidavit filed in support of the application in which the trustee had stated the purpose in making the application for the examination summons was clearly relevant to the question of whether there was an improper purpose. Their Honours concluded, therefore, that the trial judge had been in error in refusing access to the affidavit. 21 In Re Leisure Development (QLD) (In Liq); Ell & Ors v Palmer (2002) 41 ACSR 276; [2002] NSWSC 248, Austin J, having referred to the principles stated by the Full Court in Excel Finance Corp Limited, observed at [37] that the Court had to be satisfied that the party seeking inspection of documents had an arguable case to which the material in the affidavit was relevant, before the Court would grant inspection by making an order under s 596C(2). That arguable case could emerge from the undisputed facts without any necessity to adduce specific evidence of the motives of the party that applied for the examination summons. 22 His Honour then adopted as the correct approach to an application for an inspection of an affidavit the decision of Mansfield J in Re Moage Limited (In Liquidation); Sheahan v Pitterino & Ors (1997) 77 FCR 81. That approach was that, having raised an arguable case, it could be accepted that there were persuasive grounds for allowing access to the affidavit. At that point, Mansfield J considered that it was appropriate to examine the affidavit. We agree that that is a correct approach to an application under s 596C(2) and it would usually be the preferable approach. 23 Austin J, after commenting upon what the affidavit contained and for that matter, did not contain, said at [42], that it was of critical importance that the recipients of the examination summons be informed of the specific matter that the applicant for the summons, in that case, the liquidator, intended to investigate by the examination process. His Honour said: "Without knowing and being able to assess that information, the applicants cannot present a plausible case of abuse of process." 24 Austin J found no relevant prejudice to the liquidator in making the disclosure and said that if the applicants had an arguable case in the requisite sense, he would not hesitate to make an order providing access to the affidavit. His Honour, on such material as he had, did not consider that there was any need to place any restriction on that access, although it is apparent that that was an available process, as he was prepared to hear submissions in that regard. 25 These principles were confirmed by this Court in Meteyard v Love (2005) 65 NSWLR 36; [2005] NSWCA 444. In Meteyard Basten JA, at [141], observed that an applicant for disclosure of the affidavit will generally be given access to it if an arguable case has been established that the issue of the summons for examination exceeded the power of the court under s 596B and that access to the affidavit was likely to assist in determining the correctness of the challenge. 26 His Honour's observation derives from what was said in Fetzer v Irving as liquidator of Mawson KLM Holdings Pty Limited (In liq) (2005) 91 SASR 54 at 59 [27]-[28] and in Re Southland Coal Pty Limited (Rec Mgr Appt) (In liq) (2006) 58 ACSR 113; [2006] NSWSC 184, Austin J at [104], observed that this principle was not in contention. These observations should, of course, be applied having regard to the approach suggested by Mansfield J in Re Moage Limited (In Liquidation) and adopted as correct by Austin J in Re Leisure in the manner we have discussed above. Were it otherwise, an applicant would be required to prove that the affidavit was likely to assist in determining the challenge in circumstances where the content of the affidavit is unknown.

Factual background 27 As referred to above, Mr Ariff was appointed by the directors of the companies in the CarLovers group as voluntary administrator of the companies pursuant to s 436A of the Corporations Act. On 3 November 2003, at the second meeting of creditors of the CarLovers group, the creditors of the group resolved that the companies should enter into a deed of company arrangement and that Mr Ariff be appointed deed administrator. At the meeting, a number of persons were nominated to become members of the committee of inspection of companies in the group (save for CM, in respect of which no committee of inspection was formed). Mr Sewerle was appointed as the representative of the employees of each of the companies (other than CM). Mr Robbie Fong, a director of each of the companies, was appointed to represent himself. The deeds of company arrangement were executed on 5 December 2003. 28 On 2 September 2005, Barrett J gave judgment on Mr Ariff's application for orders relating to approval of his remuneration under s 449E of the Corporations Act: CarLovers Carwash Ltd & Ors (2005) 54 ACSR 696; [2005] NSWSC 879. The detail of his Honour's judgment is not relevant to the issues on the appeal save for one. Mr Ariff complains that the Berjaya group is, at the least, resisting payment of his remuneration, if not in fact, "holding him to ransom" in respect of his remuneration. The basis of this allegation is contained in the evidence which is discussed below. It is sufficient to observe at this point that on 2 September 2005, Barrett J ordered that Mr Ariff's remuneration be fixed by the committee of inspection, or should that not occur, for Mr Ariff to have his remuneration fixed by the Court. Mr Ariff's remuneration to which he has been entitled since 1 July 2004, has not been fixed by the committee of inspection. Nor has Mr Ariff made any application to the court in respect of his remuneration. 29 Mr Ariff gave evidence in his affidavit sworn 12 July 2006 that he has had a difficult relationship with Berjaya over the course of the deed of administration of the CarLovers group. He listed seven areas of disputation as follows: "(a) Berjaya's desire for responsibility for the day-to-day management of the [CarLovers group] to revert to the directors (who are associated with Berjaya);

(g) the refusal of Berjaya, or its representatives on the Committees of Inspection of the [CarLovers group], to approve my remuneration since September 2004." 30 It appears that the difficulty in the relationship formally emerged on 9 February 2004, when Mr Ariff revoked the delegation of certain management responsibilities to the directors as set out in (b) above. Mr Ariff said he revoked this delegation in circumstances where he learned Berjaya's representatives had, without his prior knowledge or approval, caused the funds of the CarLovers group to be diverted to a bank account which had been opened by those representatives and that they had made interest payments from that account to Berjaya and had also paid director's expenses, which Mr Ariff contends ought not to have been paid. The other matter in issue which arose at that time was, on Mr Ariff's allegation, that the representatives of Berjaya shortpaid moneys which they were obliged to make to the Deed Funds. 31 Mr Ariff listed other issues which, it appears, had arisen at the same time, including Berjaya's failure; to provide him with management accounts or other information relating to the CarLovers group; to maintain a general ledger system which his office had implemented in relation to the management of the CarLovers group; and to assist him with the franchisee recoveries that had been contemplated in the deeds of administration. 32 The dispute between Mr Ariff and the representatives of the Berjaya group appears to have continued without abate up to the time of the issue of the examination summonses. 33 Mr Ariff also gave evidence that, on a number of occasions since September 2004, representatives of the Berjaya group had said words to him to the effect, "your fees will be approved if you return control of the company to us". Mr Ariff said such comments had been made on three separate occasions; the first on 9 September 2004, the next on 18 November 2004; and finally at a meeting on 26 April 2005. 34 In addition, Mr Ariff contends that at a meeting on 20 October 2005, Mr Fordyce said to him words to the effect, "If you don't leave, I'll make sure that you lose your registration". Mr Ariff's solicitors, Clayton Utz, wrote to to Mr Fordyce on 28 October 2005 complaining about this threat. 35 This letter was but one letter in a body of correspondence between Clayton Utz and Mr Fordyce. It is apparent from that correspondence that there have been two connected principal matters of agitation between Mr Ariff and Berjaya. The first related to Berjaya's requests to have access to the books of the company. The second related to Mr Ariff's remuneration. It is also not in doubt from that correspondence that the Berjaya group wishes to have the business returned to it. This is apparent from an email to Mr Ariff from Mr Fordyce on 27 October 2005, in which Mr Fordyce said: "Stuart

… as we have previously advised … [Mr Ariff] has incurred significant costs and expenses meeting [Berjaya's] demands for information, including in relation to the due diligence process undertaken at [Berjaya's] request." 40 Mr Fordyce responded on 20 October 2005. He pointed out, amongst other things, that the timeframe for inspections had been agreed the previous week and that Mr Ariff's representatives had agreed that the timeframe was reasonable. He referred to cl 4.4(a) of the Charge granted by each of the companies to Berjaya, which provided for a right of access to all the records of the CarLovers group at all reasonable times. Mr Fordyce rejected the assertion that Berjaya should be liable for the costs of inspection, stating that the obligation to bear the costs of inspection lay with the CarLovers group under cls 14.1 and 17.1 of the Charge. 41 As to the particular documents which were required, Mr Fordyce said: "In particular, what [Berjaya] will require under their charges is to have access to all records of disbursements those CarLovers companies have paid to Ariff pursuant to requisitions/ requests/instructions from Ariff (and/or invoices issued by Ariff) (' Ariff Disbursement Invoices '), the invoices that made up the Ariff Disbursement Invoices (' Primary Invoices ') and the evidence as to payment of those Primary invoices recorded through the cheque books (or equivalent) and the bank statements of Ariff Insolvency (' Supporting Documents ')." 42 Ms Ariff, at the meeting of the committee of inspection on 14 October 2005, had informed him that the CarLovers group had, whilst under the control of Mr Ariff, paid the Ariff disbursement invoices as identified above, without requiring to see the primary invoices or the supporting documents. 43 Clayton Utz responded by facsimile on 21 October 2005. They said that the records which had been categorised as "Ariff Disbursement Invoices", "Primary Invoices" and "Supporting Documents" were records of Stuart Ariff Insolvency Administrators, not the books of any of the CarLovers group of companies and thus were not available for inspection by Berjaya. Clayton Utz confirmed, however, that the CarLovers group were willing to comply with their obligations under the Charges. Clayton Utz informed Mr Fordyce, however, that inspection on 24 October 2005 was not suitable. 44 In his memorandum in response, Mr Fordyce raised one of the matters which may be seen to be at the heart of the dispute. Having stated that his clients would be attending CarLovers' head office on 24 October 2005 to inspect the documents that they were entitled to inspect, he then said: "Clearly the Ariff Disbursement Invoices, promised to be faxed to me by Monday of this week, will be available at Carlovers. It beggars belief that Carlovers could have paid $100,000's of dollars to Ariff Insolvency without obtaining all of the Primary Invoices and Supporting Documents. Why is an insolvency practice paying these expenses and not Carlovers itself?

This is clearly a bizarre and totally unacceptable state of affairs. What checks and balances are there. How can Ariff, wearing the hat of managing the Carlovers companies, accept the extraordinary state of affairs that you advise prevails in these companies. Mr Ariff is clearly in a position of intolerable conflict of interest. Who is protecting the interests of the Carlovers companies - paying out massive amounts on one page invoices? Mr Ariff must immediately relinquish control of Carlovers back to its directors ." (Emphasis added) 45 On 24 October 2005, Mr Fong arrived at CarLovers head office in the company of Mr Fordyce's employed solicitor, David Ling. They were met by Mr Sewerle who, according to Mr Fordyce in his memorandum to Clayton Utz of the same day, called Ms Ariff to inform her of Mr Fong and Mr Ling's presence. Mr Sewerle informed them that they could proceed with the agreed inspection. About 10 or 15 minutes after that, Mr Fordyce alleges that Ms Ariff rang and withdrew permission for him to access the books. At Ms Ariff's request, Mr Ling telephoned Mr Ariff, who informed them that as there had been communications between the solicitors in relation to the inspection date which had not been agreed, no inspection could take place until agreement had been reached. 46 On 28 October 2005, Mr Fordyce sent a memorandum to Clayton Utz, in which he stated, inter alia, that he considered it would have been in Mr Ariff's interests to allow inspection so as to: "… assist the committee to reach the point were Berjaya was satisfied that approval of [Mr Ariff's] fees and disbursements was in order - rather than frustrate them in this endeavour. These inspections are a vital part of that process. Please advise when the inspection of [Mr Ariff's] records can proceed." 47 He then repeated the request for the documents in the same terms as in his request of 20 October 2005. Mr Fordyce also refuted Clayton Utz's allegation that Berjaya had had access to the "Ariff Disbursement Invoices", the "Primary Invoices" and the "Supporting Documents", contrary to the assertion which had been made in Clayton Utz's facsimile of 19 October 2005. Mr Fordyce also indicated that after inspection, Berjaya might wish photocopies made of some or all of the documents and suggested that that could be done either by photocopying them at Ariff's facilities, or having them commercially photocopied and also indicated that the request included an offer by Berjaya to pay the proper and reasonable costs of assisting with the inspection of the documents. 48 In the letter of 28 October 2005 (see [34] above), Clayton Utz, after complaining about the threat to Mr Ariff's registration, then said: "It has recently come to our attention that you invited [Mr Ariff] to a so-called 'without prejudice' lunch on 20 October 2005, at which lunch you told him that [Berjaya] want him to leave Carlovers and return the business to [Berjaya] without recovering his outstanding costs and fees. We are instructed that you also threatened him with words to the effect 'If you don't leave I'll make sure that you lose your registration.'

We confirm that we are instructed to accept service of any process [Berjaya] wish to issue in relation to this matter." (Emphases added) 53 Included amongst the appeal material was a photocopy of an affidavit sworn 23 August 2006, in which Mr Ariff deposed to a conversation with Adam Farnsworth, a former consultant to his firm, in which Mr Farnsworth reported a conversation with Mr Fordyce, in which Mr Fordyce said: "… 'if [Mr Ariff] returns the company to the Malaysians [Berjaya] it will all go away and there will be no examination." 54 The appeal papers also included two affidavits of Yazni Ariff, both sworn 24 August 2006 and an affidavit of Kristy Anne Zander, a solicitor in the employ of Clayton Utz, having the conduct of these applications for the claimants, also sworn 24 August 2006. Those affidavits were directed to those parts of the claimant's Amended Interlocutory Process seeking to set aside the subpoenas and notices to produce. We will return to those affidavits later in these reasons. It is appropriate, however, to first deal with the affidavit of Mr Fong, sworn 24 August 2006. 55 Mr Fong provided a brief overview of the problems with the CarLovers group that led to the voluntary administration. He stated that in 2003, there were problems with the group that needed to be addressed. He said that in about April 2003, Mr Ariff had approached the executive director of one of the companies in the Berjaya group regarding the possibility of purchasing the CarLovers group. In his affidavit, Mr Fong deposed that at that time Mr Ariff advised that the voluntary administration regime would provide a way of dealing with and correcting the problems that the group was then experiencing. It appears that on 17 June 2003, Mr Ariff, on the letterhead of Star Dean Willcocks Crosbie (Mr Ariff then being a member of that firm), put forward a proposal for his appointment as a voluntary administrator. The letter set out proposed terms of engagement, including the following statement: "'Form of Administration and Effect

The objective of a Voluntary Administration in this instance is to enable the company to facilitate a better return to creditors than if the company was to be wound up on the date of the appointment of an Administrator. The director(s) must hand over control to the Administrator during the period from appointment of the Administrator up to approval and execution of the Deed. The Administrator is personally liable for the ongoing debts of the company incurred with his authority during the period of Voluntary Administration up to the appointment of the Deed Administrator, at which time it is intended control and stewardship will revert to the board .' [Emphasis added]" 56 Mr Fong contended in his affidavit that Mr Ariff had only twice allowed inspection of books and records relating to the CarLovers group and asserted that on those occasions, access had been limited. He said the first occasion of access was in or about December 2003, when limited inspection was undertaken of records relating to vouchers and payments that the CarLovers group had generated during the period it was in voluntary administration. He said that on that occasion, no access was allowed to the disbursement records of the administrator, as had been requested. The second occasion of access was in May 2004, when access was given to a single lever-arch folder, which contained documents relating to the voluntary administration selected by Mr Ariff. Mr Fong said that, despite numerous other requests and appointments made for inspection, no other access had been granted. 57 Mr Fong said that the purpose of the applications for examination summonses and the orders for production of documents and subpoenas were, in his belief, based within the examinable affairs of the CarLovers group within the meaning of s 53 of the Corporations Act. He also stated that it was his belief that: "… the examination summons may provide information to creditors concerning the administration of the business and will be of assistance in any potential prosecuting causes of action." 58 Mr Fordyce also swore an affidavit on 24 August 2006, in which he deposed that the application to ASIC to have Mr Fong appointed as an eligible applicant for the purpose of conducting examinations into the affairs of the CarLovers group had to be supported by relevant documentation. He said that the material presented to ASIC was identical to the material presented to the Supreme Court by way of an annexure to the affidavit in support of the applications for examination summonses. He deposed that disclosure of the material in the affidavit would: "… endanger the successful outcome of the examinations as it would deprive the examinations of the important advantage of the examinees not knowing what they were to be examined about so that they would not have the opportunity to prepare answers as opposed to providing spontaneous answers to the questions asked of them."

Order for Production to Mr Ariff. 2. Order for Production to Yazni Ariff. 3. Subpoena to the proper officer, S Ariff Nominees Pty Limited. 4. Subpoena to the proper officer, S Ariff Nominees No 2 Pty Limited. 5. Subpoena to the proper officer, CarLovers Carwash Limited. 6. Subpoena to the proper officer, CarLovers Carwash (Aust) Pty Limited. 7. Subpoena to the proper officer, CarLovers (Maroochydore) Pty Limited. 8. Subpoena to the proper officer, The Carwash Kings Pty Limited. 9. Subpoena to named partners, trading as Clayton Utz. 10. Subpoena to Star Dean Willcocks Crosbie. 60 The Order for Production issued to Mr Ariff called for the production of all documents in his possession, commencing 1 June 2003, to the date of the Order for Production, relating to his appointment as administrator of the CarLovers group and the administration and management of the CarLovers group during that period. The Notice to Produce then specified 43 categories of documents of which production was required. 61 These documents included documents relating to charge-out rates in relation to the administration; fees claimed as having been paid by CarLovers to, relevantly, Mr Farnsworth, as consultant; documents relating to the engagement of Mr Farnsworth and his consultancy company; business connections between Mr Ariff and Mr Farnsworth; the employment of, inter alia, Mr Farnsworth and Ms Ariff through Mr Farnsworth's consultancy company; the payment of legal costs and disbursements; the payment of cash advances; the payment of particular specified amounts; the payment of travel expenses; the payment of reimbursements and extraordinary expenses; and documents providing for particulars of all payments made from the CarLovers group to either Mr Ariff and/or one of his company's accounts. 62 The Notice to Produce also sought the production of the CarLovers group management accounts, as well as diaries, timesheets, records of all personnel employed; payroll records; Business Activity Statements; records of all payments made through Mr Ariff's companies relating to the CarLovers group; copies of all bank statements for accounts maintained by Mr Ariff and the Ariff companies during the specified period; copies of receipts and payments in the possession of Mr Ariff and his companies prior to 1 June 2003, relating to the CarLovers group; ledgers and invoices in relation to claims for remuneration or disbursements; all documents relating to the CarLovers group and existing and prospective franchisees, leases of land and property: encumbering land and property; suppliers of goods and services; sales, leasing or in any other way parting with possession of all or any CarLovers group assets. 63 The Notice to Produce also required production of Mr Ariff's passport and copies of any and all legal advice obtained in respect of each of the CarLovers administrations. 64 The subpoenas to Mr Ariff's companies effectively mirrored the Notice to Produce to Mr Ariff. 65 The Order for Production to Yazni Ariff required the production of seven categories of documents, essentially directed to her employment in connection with the administration of the CarLovers group, her rates of remuneration, disbursements claimed by her and payments made to her, and: "Diaries, timesheets, for yourself (both private and in your roles with [the Ariff interests and Mr Farnsworth's consultancy company]) for the Period including narration as to activities undertaken and time spent by you each day on CarLovers"

as well as her passport. 66 The Subpoenas to each of the companies in the CarLovers group sought the production of seven categories of documents for the relevant period, including payments made to: Mr Farnsworth and his consultancy company, Clayton Utz, Mr Ariff's previous solicitors, Mr Ariff and his companies and Yazni Ariff. In addition, the Subpoenas sought all management accounts, files relating to franchise operations, communications from creditors regarding overdue accounts, documents relating to advertising charges and documents relating to accommodation charges paid to Mr Ariff and his companies. They also sought the same category of documents relating to existing and prospective franchisees, which had been sought in the Notice to Produce to Mr Ariff and the Subpoenas to Mr Ariff's companies. 67 The Subpoena to Clayton Utz sought five categories of documents, which in essence, required the production of all documents relating to any aspect of the administration of the CarLovers group or any aspect of its business or franchises, as well as timesheets and bills of costs issued to Mr Ariff in relation to the administration, as well as Clayton Utz's files relating to the drafting of the deeds of company arrangement for CarLovers. 68 Ms Ariff, in her affidavit, provided an estimate of the numbers of documents required to be produced pursuant to the Orders for Production and the Subpoenas. She estimated that there were in excess of 2,600 lever-arch folders containing almost 1,000,000 documents. She said that each document would have to be inspected in order to determine whether each document fell within the categories of documents sought in the Orders for Production and the Subpoenas and also to determine whether any objection on the grounds of privilege or some other ground should be made. She also pointed out that many of the records which were sought were required for use in the day-to-day running of the company's business. She also gave an estimate of the costs in attending to the production of the documents, of approximately $240,000. Ms Ariff observed that Mr Fong had not given any undertaking in respect of meeting the costs of complying with the Production Orders. 69 Ms Ariff also deposed to the fact that Mr Fong and/or representatives of the Berjaya group had had access to some of the documentation requested. She said that access had been provided in respect of documents relating to remuneration, including timesheets; documents relating to costs and disbursements, which had been inspected on 19 January 2004; copies of management accounts for the period to July 2005; and copies of diaries and timesheets had been hand delivered to the Berjaya Committee of Inspection members on 17 July 2006. 70 Ms Ariff also stated that, insofar as the Notices to Produce and the Subpoenas sought documents relating to payments made to, by, or on behalf of Berjaya, Berjaya should have those documents in its own possession. In addition, Ms Ariff stated that to the extent that the financial records of the Ariff companies were sought, the documents requested contained information relevant to all administrations and other business undertaken by the Ariff companies, unrelated to the administration of the CarLovers group. She said that if those documents were required to be produced, the documents that did not relate to the CarLovers group would need to be redacted. She said that that would be an expensive exercise in itself. 71 Ms Ariff also pointed out that other documents which were sought were public documents available from ASIC and that the request for investigation papers and summaries was likely to be subject to a claim for privilege and were commercially sensitive. Other documents which Ms Ariff said had already been supplied were the request for the WIP ledger and the management accounts, financial accounts, tax returns and audit reports of the companies in the CarLovers group. 72 Ms Zander, in her affidavit, estimated that Clayton Utz retained at least 82,550 pages of documents, which would take approximately 178 hours to review, at a total cost, including photocopying costs, of almost $100,000. 73 Whilst this review of the evidence, including the documents required for production under the various Notices to Produce and Subpoenas has been lengthy, it has been necessary for this reason. The claimants contend that the examination summonses have been issued for an improper purpose, namely to exert pressure on Mr Ariff to "hand back" the CarLovers group to Mr Fong. They submit that this pressure has been demonstrated in three ways. First, Mr Ariff has been the subject of a number of threats. In particular, threats were made in respect of his remuneration and registration as a liquidator. Second, by seeking to have Mr Ariff and his staff subjected to onerous and wide-reaching examinations; and third, to oppress Mr Ariff in the conduct of his business by the diversion of substantial time and financial resources in responding to the Notices to Produce and Subpoenas. 74 As to the first, it will be apparent from the evidence which has been reviewed that there is, in effect, two streams of material. The first is the written correspondence between the parties. That material, whilst assertive in its tone, does not extend beyond what might be described as proper bounds for communications between solicitors acting for parties engaged in difficult litigation. 75 It is apparent from the correspondence that the Berjaya interests have been concerned as to the way that the administration has been conducted and were seeking to exercise their rights under the Deed appointing Mr Ariff as administrator, particularly in relation to the inspection of documents. They were also concerned to have control of the CarLovers group immediately returned to the directors. 76 Mr Ariff, on the other hand, considered that the requests for the inspection of documents were excessive in the sense that many of the documents had already been supplied. 77 The second stream of material was the verbal communications between Mr Ariff, Mr Fordyce and representatives of Berjaya. Those communications contained the threats to which we have referred. If the evidence of those threats was accepted, those communications were highly inappropriate. There was no affidavit evidence directly refuting Mr Ariff's affidavit evidence as to the making of these threats. The refutation came in Mr Fordyce's memorandum of 31 October 2005, which was annexed to Mr Ariff's affidavit. 78 There was no cross-examination of any of the deponents to the affidavits. Mr Fordyce did not deal with his alleged comments in his affidavit. It may be that he did not consider it necessary to do so, as the matter was otherwise covered by the annexing of his correspondence to Mr Ariff's affidavit. Accordingly, Mr Ariff's evidence as to the threats was material clearly relevant to there being an arguable case of improper purpose, albeit that that evidence was contested. 79 That leaves a consideration of the examination summonses, and the compulsory court processes of Notices to Produce and Subpoenas . 80 The issuing of an examination summons is understandable in this case, notwithstanding that it is a reversal of the usual situation where the administrator is the examiner. Mr Ariff's administration has been subject of well-documented concern (whether or not that concern is well based is not in issue on this application). It appears that Yazni Ariff has had at least an administrative role in relation to the companies. Jo Drysdale appears to be a member of staff. The purpose in seeking to examine John Sewerle, however, on the material before the Court, is a matter of conjecture. 81 It is apparent from Yazni Ariff's affidavit that she considers that certain of the documents referred to in annexure A to the Notice to Produce to Mr Ariff required the production of documents that extended beyond the administration. Examples of such documents are those which are the subject of emphasis in [62] above. The Court does not agree with that construction of the Notice to Produce. Although there are no introductory words to annexure A itself, annexure A is referred to in para 2(xx) of the Notice to Produce. Paragraph 2 is introduced by the words: "The documents and things you must produce are as follows:

The administration and management of CarLovers during the Period including but not limited to: [the documents identified in paragraphs (i)-(xx)]." 82 Having said that, a consideration of the material required to be produced under the Notices to Produce and the Subpoenas, indicates that Mr Fong has sought the production of every document that has come into existence that relates to the administration of the CarLovers group from 11 different persons or entities. It is likely that there would be a considerable overlap in at least some of the material held by the various recipients of the Notices to Produce and Subpoenas. Further, it appears from the affidavit evidence, including the annexed correspondence, that the Berjaya interests already have in their possession at least some of the material which is subject to the requirements for production. It seems that the material sought would likely be in excess of what would be required to be examined should a complete audit of the CarLovers group's affairs since 2003 be conducted. That is not the purpose of examination summonses, although there may be some aspects of an examination which do bear a resemblance to an audit. 83 Mr Fong submitted that the claimants' complaints really boiled down to two propositions. The first was that Mr Fong was acting to embarrass Mr Ariff and the second was that Mr Fong was pursuing Berjaya's interests in seeking to have Mr Ariff return the control of the CarLovers group to Berjaya, without the payment of his remuneration. It was submitted by Mr Fong that there was typically embarrassment caused by the examination of a company's affairs and, secondly, that Mr Ariff's remuneration was protected by an order of the court. 84 The trial judge was not satisfied that an arguable case of improper purpose had been established. In reaching this conclusion, his Honour dismissed as a relevant consideration that there was any unusual embarrassment in the width of the examinations which were sought to be carried out. Rather, he accepted that "embarrassment" may be a natural by-product of the statutory scheme. He also accepted Mr Fong's argument that Mr Ariff's remuneration was secure. 85 He considered, therefore, that what was left was the friction between the parties relating to Mr Ariff's management of the CarLovers group being given back to the Berjaya interests and the part that those interests had played in Mr Ariff's remuneration not having been quantified. As to the latter, his Honour again observed that Mr Ariff's remuneration was secured by order of the court. As to the former, his Honour considered that there was a real issue between the parties relating to the manner in which Mr Ariff had carried out the administration, particularly relating to the manner in which Mr Ariff acted on "one-line invoices" rendered by Mr Ariff's accountancy practice to the CarLovers group. 86 His Honour observed that the Berjaya interests perceived that Mr Ariff did not want the full versions of the invoices to be seen by Berjaya and that perception underlay its wish to scrutinise the administrator's financial management of the group. His Honour considered that in circumstances where Mr Ariff had not been cooperative in granting requests to sight financial documents (notwithstanding an initial agreement to allow inspection) it was understandable that Berjaya became concerned. 87 There is no doubt, as the trial judge considered, that orders could be sought limiting the scope of the Notices to Produce and Subpoenas. For that reason, his Honour considered that the width of the documents required for production did not indicate an improper purpose. However, it seems to the Court that a requirement that a party, under a compulsory process, produce in excess of 1,080,000 documents at a cost of nearly $350,000, in circumstances where the party requiring production has already had many of those documents provided to it and was the author of many other documents is at least sufficient to raise a question of improper purpose. 88 When the width of the Notices to Produce and the Subpoenas is considered in conjunction with the number of examination summonses that have been served, it is apparent that Mr Fong intends to conduct an extensive examination. "Embarrassment" can take many forms. It is not limited to persons being required to explain their conduct or even admitting to a wrong. A person can be 'embarrassed' by being required to spend long hours away from that person's usual business and thus not be in a position to tend to the demands of other clients. Such 'embarrassment' is imposed on that person by the person making the demand. 89 In this case, there is a possibility that the proceedings will be embarrassing, if not oppressive, in that sense. That possibility is reinforced by the possibility that the Notices to Produce and the Subpoenas are oppressive in their present form. Given the width of the Notices to Produce and the Subpoenas, it is not a necessarily sufficient answer to say that there are court processes that may be invoked to remedy the oppression. To answer the question in that way has the effect of avoiding the matter in issue, namely whether there is an arguable case of an improper purpose. 90 In the Court's opinion, there is sufficient evidence before the Court to establish an arguable case of improper purpose. That material is the evidence of the threats that are alleged to have been made, the number of examination summonses that have been issued and the width of the Notices to Produce and the Subpoenas. For those reasons, it seems appropriate that, in accordance with the procedure adopted in Re Moage, and followed by Austin J in Re Leisure Development (QLD), this Court ought to itself review the contents of Mr Fong's affidavit. It has now done so. 91 Having reviewed Mr Fong's affidavit together with the supporting documents, we have reached the view that the affidavit should be made available for inspection. In the first instance, inspection should be restricted to the legal representatives for the claimants. Many of the matters raised in the supporting documentation will not come as any surprise to the claimants' legal representatives. It repeats many of the allegations which were canvassed in the course of this matter. However, it is the Court's view that having established an arguable case of abuse of process, the material in the affidavit is likely to assist in determining the correctness of that allegation. The matter has been put in those neutral terms because it is not for the Court to decide on this application whether or not the affidavit supports a case of abuse of process. However, we consider that it is sufficient for the purposes of the exercise of the discretion under s 596C(2) of the Corporations Act to order access to the affidavit, where the affidavit is material to the question whether there has been an abuse of process. 92 Not only should the claimants be entitled to rely on the contents of the affidavit if it does support their case, the court determining the application should be placed in the position where, it having been established that there is an arguable case of abuse of process, it can properly assess that claim by having regard to all the material which is relevant to that determination. 93 We consider that in the first instance, access to the affidavit should be limited to the claimants' legal representatives. Should those legal representatives consider for any reason, such as the necessity to obtain instructions to enable them to make appropriate decisions in relation to the application, an application can be made to a judge of the Equity Division of the Supreme Court for wider access. Although we consider that this ought to be understood, we make it explicit that by permitting the claimants' legal representatives to have access to the documents, unless wider access be granted, those legal representatives are not to discuss the content of the documentation with any other person, including the claimants. 94 Accordingly, the Court makes the Orders set out below:

Ariff v Fong

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Judgment (70 paragraphs)

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Cases Cited (13)

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