Ariff v Fong [2008] NSWSC 1369 | Case summary

judgment 1 I am dealing with an interlocutory process filed on 24 November 2008 by Mr Famularo. I shall refer to him as "the applicant". 2 The applicant has been served with an examination summons issued under s 596B of the Corporations Act 2001 (Cth). He is required to attend to be examined on oath or affirmation about the examinable affairs of Lift Capital Partners Pty Ltd and Lift Capital Nominees Number 1 Pty Ltd. I shall refer to them as "Lift." 3 The applicant seeks an order that the examination summons be discharged. In the course of the hearing of that application, there was an oral amendment to add a claim for an order granting access to the affidavit sworn and filed in support of the application for the issue of the examination summons. I declined to make that order and said that I would give my reasons in due course. I shall return to that matter. 4 At the outset, a matter of timing arises for consideration, in that it appears that the interlocutory process was filed outside the time limit allowed by rule 11.5(2) of the Supreme Court (Corporations) Rules 1999. As the time limit was missed by only a small margin, I do not pause to consider that matter further. It does not affect the court's jurisdiction: Re Total Entity Pty Ltd [2003] NSWSC 924; (2003) 47 ACSR 577. 5 It does not seem to be in dispute that the applicant is, or was at relevant times, the sole director or otherwise intimately connected with 25 companies which had contractual dealings with Lift, or that the business of Lift was, in broad terms, share trading and margin lending. The liquidators of Lift are proceeding on the basis that, because of the contractual relationship between Lift and the 25 companies, those companies are indebted to Lift and that the applicant, as a guarantor of the obligations of the companies, is likewise indebted to Lift. 6 The liquidators have made it clear that their purpose in pursuing examination of the applicant is to inquire into the question whether proceedings against the 25 companies and against the applicant himself may be expected to enjoy prospects of successful recovery sufficient to warrant proceedings being brought. The emphasis, in any examination, will be upon the question of assets that might be available to answer any judgment. 7 The applicant argues that examination for that purpose is beyond the permissible scope of s 596B. He accepts that there is a line of cases in which the examination jurisdiction has been held to be properly employed where it is sought to discover whether insurance cover exists which could be accessed through proceedings brought by a liquidator. It is submitted by the applicant, however, that that is a special class of case and that pursuit of the purpose I have outlined would be beyond the purpose for which the examination power exists. 8 I do not accept that submission. There is, in my opinion, abundant authoritative support in the case law for the proposition that investigating the viability and worth of causes of action that the company in liquidation may have against third parties is an aspect of the "examinable affairs" of the company and therefore within s 596B(1)(b)(ii). 9 Reference was made by counsel for the liquidators to paragraphs [44] and [47] of the judgment of Basten JA in Meteyard v Love [2005] NSWCA 444; (2005) 56 ACSR 487: "[44] There is, in addition, an established line of authority to the effect that an eligible applicant under s 596B may examine a potential defendant, or an existing defendant, in relation to proposed or actual litigation, in order to determine whether the defendant has sufficient assets to meet an adverse judgment, if unsuccessful in the litigation. On the other hand, the authorities draw a line between those possible topics of inquiry and use of the examination process to determine the strength or weakness of the corporation's case, or its opponent's case, in relation to the dispute. In the recent decision of the Full Court of the Supreme Court of South Australia, Re Normans Wines Ltd; Harvey v Burfield (2004) 88 SASR 541; 207 ALR 644; 49 ASCR 628; [2004] SASC 171 Mullighan J quoted without criticism, the following statement of the trial judge (at [42]): 'The authorities establish that an improper purpose includes a purpose of using the examination as a dress rehearsal for cross-examination, or for the purpose of destroying the credibility of the examinees or witnesses who might be called for the examinee in substantive proceedings, or for the predominant purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, or simply to cause undue inconvenience or embarrassment to the examinee or to inflict costs.' … [47] Returning to the scope of the power conferred by s 596B, the aspect of the examinable affairs of the company of primary relevance in the present circumstances is sufficiently encapsulated in the concepts of management and administration identified in para (a) of the definition of 'examinable affairs'. Part of the management and administration of Southland Coal will be deciding whether to institute proceedings against QBE in relation to a denial of liability under the insurance policy. Information relevant to that decision forms part of the examinable affairs of Southland Coal. Such information will, consistently with the authorities, include: (a) information necessary to assess the justification or otherwise of the denial; (b) in an appropriate case (of which this is not one) information as to the worth of the potential defendant in such proceedings. Such material falls within the proper field of examinable affairs described by Street J in Hugh J Roberts at NSWR 584; WN (NSW) 540, quoted with approval by the Full Court of the Federal Court in Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 at 309; 120 ALR 262 at 270; 12 ACSR 646 at 654: 'The liquidator is given by the statute this special authority to proceed by way of private examination to obtain information which he needs for the due winding up of the company, the affairs of which he has the responsibility of administrating.'' 10 It was submitted by Mr Sweeney QC on behalf of the applicant that those passages are obiter dicta or wrong or both. 11 I do not consider the passages to be wrong; and, even if they are obiter dicta, they are of highly persuasive force. In any event and as I have said, there is abundant authority in support of the use of the examination jurisdiction for this purpose. Reference may be made, for example, to the decision of the Full Federal Court in Re New Tel Pty Ltd; Evans v Wainter [2005] FCAFC 114; (2005) 145 FCR 176, where an example will be found of an examination to ascertain the financial resources of particular potential defendants. The cases referred to on pages 15.2065 and 15.2066 of McPherson's Law of Company Liquidation, loose leaf, starting at the second last line of 15.2065 and going to the beginning of the footnotes on page 15.2066 further support this proposition. 12 I do not accept that the purpose the liquidators seek to seek to achieve through the examination in this case is, in any sense, an improper or impermissible purpose or a purpose beyond the scope envisaged by s 596B. 13 That conclusion, I might say, was also sufficient to dispose of the application for access to the affidavit to which I have already referred. The general approach to that matter is outlined at paragraph [141] of Meteyard v Love (above). In general terms, access to the affidavit will not be granted unless it is shown that there is an arguable case that the examination summons was issued for an improper purpose: see also Ariff v Fong [2007] NSWCA 183; (2007) 63 ACSR 384. My finding as to propriety of purpose underpins also the decision not to allow access to the affidavit. 14 The applicant next said that there is a reason why the court should, in its discretion, set aside the examination summons. Reference was made to the fact that, in the absence of some order to the contrary, an examination takes place in public. This examination - directed, as it is, to the financial affairs of the 25 companies and those of the applicant himself - can therefore be seen to be potentially intrusive into areas where confidentiality is in the ordinary course expected. Individuals' financial affairs and those of companies are, generally speaking, private. There are, for example, laws denying general access to documents such as tax returns. 15 We are dealing here with legislative prescriptions. They have been formulated, no doubt, in full knowledge of what is ordinarily private, yet they provide for examination in public. There is provision for an examination to take place in private if "special circumstances" exist (s 597(4)); but the simple proposition that the financial affairs of companies or individuals that would normally be private are involved would not, of themselves, constitute "special circumstances": Re Pan Pharmaceuticals Ltd [2003] NSWSC 1204; (2003) 48 ACSR 452. 16 It was pointed out on behalf of the liquidators that the applicant has not adduced any evidence of prejudice that will actually be suffered by the conduct of an examination, whether in private or in public (and, of course, as I have said, in the absence of some order to the contrary, it will be in public). The exposure of information normally private is part and parcel of the statutory system and not at all sufficient to activate the discretion that no doubt exists for the court to discharge an examination summons. 17 I have not so far mentioned that the interlocutory process also seeks an order setting aside an order for production of documents, being documents ancillary to the examination. The same considerations apply. 18 The applicant has failed to establish a case for the grant of the relief he seeks. 19 I order that the interlocutory process of Anthony Famularo filed on 24 November 2008 be dismissed with costs.

Ariff v Fong

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