Ariff v Fong [2009] NSWSC 946 | Case summary

It is trite to say that, in such circumstances, this court should be slow to interfere. It ought not to overturn the orders made by the Master unless it is convinced that they are plainly erroneous: Consolidated Gold Mining Areas NL v Enterprise Gold Mines NL (1992) 57 SASR 584; Remm Construction (SA) Pty Ltd v Wallbridge and Gilbert Pty Ltd (1991) 162 LSJS 99 at 105; Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170." 11 But the members of the Supreme Court of South Australia were not here laying down a rule of general application to matters in which it is sought to have examination summonses discharged. Olsson J said at the start of his judgment: "These are two appeals which are brought, pursuant to leave, against orders made by a Master on 15 October 1993 and 1 November 1993." 12 Olsson J's description of the nature of "the present appeal" was thus directed to the procedure of the particular court upon appeals from a master. None of the three cases cited in support of the statements about the nature of "the present appeal" concerned an examination summons. It follows that the observation of Basten JA at paragraph [9] above does not lay down a rule of general application to cases in which it is sought the discharge of an examination summons. In the present case, for the reasons I have stated, the application for discharge must be approached as a "review" of the registrar's decision. 13 Dr Bell accepted this. He emphasised, however, that, in undertaking such a "review", the court is exercising federal jurisdiction. He referred to Gould v Brown [1998] HCA 6; (1998) 193 CLR 346 where it was held (at [33]) that the function that a court performs in ordering and conducting an examination in a company winding up is of a judicial character. 14 Dr Bell submitted that whatever might have traditionally been regarded as the nature of a "review" of a registrar's decision, the concept has had a special meaning since the provisions about examination summonses have been provisions of Commonwealth law. Before the advent of the Corporations Act 2001 (Cth), the statutory provisions in force in New South Wales (and, indeed, in the other States) with respect to examination summonses and like matters were, of course, provisions of State law forming part of the Corporations Law of the State. Now, by contrast, the jurisdiction exercised by this court when performing the functions created by Part 5.9 of the Corporations Act is jurisdiction conferred by s 1337B of that Commonwealth Act, a provision enacted by the Commonwealth Parliament pursuant to s 77(iii) of the Constitution. 15 Dr Bell contended that, as a consequence, an application of the present kind, being a review by a court exercising federal jurisdiction, attracts the following statement by Basten JA in Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61 at [43]: "In federal jurisdiction, a review is taken to mean a re-examination of a matter afresh, not limited to reconsideration of the material before the primary decision-maker: see Re Brindle; Ex parte F B & F A McMahon Pty Ltd (1992) 35 FCR 506 at 509 (Hill J). It may be found to have a similar meaning in an administrative context: see, for example, SAAP v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 228 CLR 294 at 352 [199] (Hayne J)." 16 That observation followed his Honour's reference to "the complex history that has attended the question of the exercise of the judicial power of the Commonwealth other [sic] than judges" (these are words used by Gummow J in Re Greenhill; Ex parte Pook (1988) 83 ALR 295 at 296, referring to Commonwealth v Hospital Contribution Fund of Australia [1982] HCA 13; (1982) 150 CLR 49). 17 Dr Bell further submitted that because of the meaning of review in federal jurisdiction, this court, in a matter of the kind now before it, must embark upon a hearing de novo and by reference to such evidence as is then put before it, with the result that the burden of making a case for the issue (or, more accurately, continuation) of the examination summonses rests squarely with the liquidators. Otherwise, he says, the judicial power of the Commonwealth in the matter of the issue of the examination summonses will not be validly exercised. 18 If, as is thus suggested, the liquidators have the task of making out from the beginning a positive case for examination of the examinees, they must, of course, adduce evidence - being, most probably, the evidence that was contained in the s 596C(1) affidavit to which the s 596C(2) embargo now applies. 19 In contending for the particular meaning of "review", Dr Bell referred to Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 which concerned delegation of functions to registrars of the Family Court of Australia. Mason CJ and Deane J were of the view that delegation to a court officer is valid if exercise of the delegated jurisdiction, powers and functions is subject to review by or appeal to a judge on questions of both fact and law. Dawson J saw the essential element as retention at judicial level of effective supervision and control over the exercise of functions by court officers. Gaudron J also emphasised the need for supervision. McHugh J referred to a more exacting requirement, namely, that delegation is permissible only if the exercise of the delegated power is subject to review by way of de novo hearing. 20 I am not satisfied that these requirements, whatever may be their precise scope, are relevant to the matter before me. Where, as here, a Commonwealth law confers jurisdiction on a State court, the law intends the jurisdiction to be exercised by the State court as it in fact exists, complete with such delegations and systems of supervision of delegates and such provisions with respect to appeal and review as form part of its structure according to State law. The Commonwealth Parliament has a choice: to take State courts as it finds them and to confer jurisdiction on them; or to create federal courts to be the repositories of federal jurisdiction: see Commonwealth v Hospital Contribution Fund of Australia (above), particularly per Mason J at CLR 61. This led Basten JA to say in Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; (2007) 65 ACSR 383 at [37]: "The power to invest jurisdiction does not carry with it the power to alter the structure or organisation of state courts. On the other hand, neither does the state have power to pass laws with respect to the exercise of federal jurisdiction. Rights, powers and procedure available in the exercise of federal jurisdiction are determined by laws passed by the parliament. In the absence of Commonwealth laws which otherwise provide, state laws will operate, but only because of the federal mandate found in such provisions as ss 68, 79 and 80 of the Judiciary Act 1903 (Cth). In relation to criminal procedure, rights of appeal are expressly identified in s 68(1)(d). In relation to the civil jurisdiction generally, the broad statements of ss 79 and 80 are sufficient to pick up and apply rights of appeal or review conferred on parties under state law." 21 There is a reference in the passage just quoted to s 79 of the Judiciary Act 1903 (Cth). By virtue of that section, the laws of New South Wales, including the laws relating to procedure, are binding on this court when exercising federal jurisdiction, except as otherwise provided by the Constitution or the laws of the Commonwealth: see, in relation to proceedings under the present Corporations Act, Gordon v Tolcher [2006] HCA 62; (2006) 231 CLR 334 where it was held that after proceedings are commenced in a State court invested with federal jurisdiction, "the conduct of the litigation is left for the operation of the procedures of that court". Dr Bell did not refer to any provision of the Constitution or of Commonwealth law displacing, in relation to an application in this court of the kind now before me, New South Wales laws relating to procedure. 22 In the light of these matters (and bearing in mind that the relevant federal jurisdiction was conferred by s 1337B as recently as July 2001), it must be accepted that this court's established procedures and practices with respect to review of registrars' decisions are applicable to review of a registrar's decision to issue an examination summons under s 596B of the Corporations Act. The fact that the decision to be reviewed is a decision made in exercise of federal jurisdiction pursuant to a Commonwealth Act does not mean that some unseen federal overlay somehow requires the court to modify its established procedures and practices in order to conform to some norm that applies to delegation of functions to officers of federal courts and shapes the process of reviewing the actions of those officers of federal courts. 23 The established procedures and practices of this court to which regard must be had are those to which I have already referred. They concern review of a decision of a registrar of the court as envisaged by s 121(3) of the Supreme Court Act and rule 49.19 of the Uniform Civil Procedure Rules. Their essential nature may be gathered from the judgments of Basten JA and Hodgson JA in Tomko v Palasty (No 2) (above). Basten JA noted (at [52]) that a review, unlike an appeal, "does not require" demonstration of error and "is not restricted" to reconsideration of the material before the primary decision maker; authorities with respect to the conduct of appeals against the exercise of discretionary points, such as House v The King [1936] HCA 40; (1936) 55 CLR 499 "do not in terms apply to a review", although "similar policy considerations may arise in relation to a review" to make a court "less inclined to intervene" or "more inclined to intervene"; and, although the court should, on a review, "exercise afresh" the relevant power, "it does not follow that the reasoning of the Registrar should be ignored, or that variations in the materials presented to him and the evidence adduced in this Court are irrelevant". 24 Hodgson JA observed (at [7] and [8]) that the process of review involves a discretion, including a discretion whether and, if so, how to intervene; also that the person seeking review has an onus to make out a case for intervention. His Honour added that this will "normally require at least demonstration of an error of law, or a House v The King error, or a material change of circumstances, or evidence satisfying the strict requirements for fresh evidence". 25 Ipp JA agreed with both Hodgson JA and Basten JA. 26 It is made clear by the judgments in Tomko v Palasty (No 2) that review, in the relevant sense, involves discretionary intervention. The starting point for the court is therefore the decision that is to be reviewed. The court does not merely cast that decision to one side and proceed as if it had never been made. While it is for the court to make the relevant decision afresh, it will have regard to the basis on which the decision was made and the material placed before the court itself on the application for review. 27 In a case such as the present, the court considering the application for review may or may not have before it the s 596C(1) affidavit filed in support of the application for the issue of the examination summons. In Meteyard v Love (above) at [140] and [141], Basten JA made it clear that a person seeking to have an examination summons set aside does not, merely by mounting the challenge, place an evidentiary burden on the liquidator to reveal the content of the s 596C(1) affidavit. If the person who has initiated the challenge wishes the affidavit to be before the court for the purposes of its review, that person must first show that there is an arguable case that the issue of the summons exceeded the court's power under s 596B and that access to the affidavit is likely to assist in determining the correctness of the challenge: see also Ariff v Fong (above) at [25] and [26]. In other words, if that person wishes to ensure that the s 596C(1) affidavit is before the court upon the review, the person must independently negotiate the s 596C(2) hurdle. 28 It follows that if the challenger cannot establish one or both of the things necessary to penetrate the s 596C(2) barrier, the whole of the material upon which the original decision was based will not be before the court when it proceeds to a review of that decision. That was in fact the position in Meteyard v Love. 29 It is thus for the present applicants to make a positive case for interference with the results flowing from the registrar's decision that the examination summonses should issue. As Mr Newlinds SC observed in submissions made for the liquidators, it would be an odd and anomalous result in the particular context if, when the registrar's decision was challenged, it became incumbent upon the person who had obtained the issue of the examination summons to make the original application afresh, including by reading, upon the contested review hearing, the affidavit relied upon before the registrar which had already become subject to the s 596C(2) embargo on inspection. That embargo exists to guard against the possibility that knowledge on the part of the examinee of information in it may frustrate the examination process. The review procedure does not force upon the person seeking to uphold the ex parte order disclosure of the affidavit's content, failing which that person is doomed to fail because offering no evidence. That is the very point made in Meteyard v Love at [140] and [141]. 30 In the events that happened, the s 596C(1) affidavit (together with its exhibit) was before the court and available to the examinees' legal advisers for the purposes of the review application. Dr Bell took advantage of that availability to the extent of cross-examining the deponent, Mr Wily. I also had before me the content of affidavits read by Dr Bell and documents tendered by him. There was thus available to the court and the parties all the material that had been before the registrar when the original decision was made and as much additional material as the examinees themselves desired to place before the court (including through cross-examination of Mr Wily). The court is thus fully able to approach the matter afresh and by reference to comprehensive material without any need to be particularly conscious of onus. 31 I turn, therefore, to the background facts. The LED companies are some of the nine plaintiffs in Commercial List proceedings commenced by summons filed on 11 April 2008. There are 78 defendants. They are persons who were, at material times, the partners of the accounting firm RSM Bird Cameron. That firm provided certain professional services (including audit and taxation services) to the plaintiff companies, including the LED companies. The claims against the firm are for breach of retainer, negligence and misleading and deceptive conduct. The examinees are among the defendants, having been partners at the relevant time. It is accepted that each of them is likely to be a witness in the defendants' case. 32 The several plaintiffs (including the LED companies) commenced the Commercial List proceedings before the windings up of the LED companies intervened. The decision to sue, so far as the LED companies are concerned, was thus not a decision of the liquidators. The liquidators were not particularly active in relation to the pending litigation for some time after their appointment because a bank-appointed receiver had control of the affairs of the LED companies. The question of pursuit of the claim against RSM Bird Cameron was at that time seen by the liquidators to be one for the receivers. However, the receivers left the scene about three months ago and the liquidators then devoted renewed attention to the litigation. 33 In more recent times and as a result of a closer review of the litigation, the liquidators have formed a preliminary view that there are good prospects of success; although Mr Wily made it clear in cross-examination that he considers some aspects of the overall claims to be less promising than others. The liquidators are, however, without funds. They will not be able to pursue the litigation for the benefit of the LED companies without funding from an outside source. 34 The liquidators approached the major creditor with a request that it consider funding the Commercial List proceedings. It was not interested in doing so. In a report to creditors, the liquidators made a general request for finding assistance. No positive response was received. 35 The liquidators have to this point been unable to secure funding from a commercial litigation funder. Discussions with a potential funder are, however, ongoing. 36 The criteria to be applied upon an application such as the present were stated by Lander J in Re New Tel Ltd; Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 at [252]: "1. The power given to the Court to summon a person for examination is a coercive power. 2. The purpose of the power is to be gleaned from the legislation. 3. The following legitimate purposes emerge: 3.1 First, an examination is designed to serve the purpose of enabling an eligible applicant to gather information to assist the eligible applicant in the administration of the corporation. 3.2 Second, it assists the corporation's administrators to identify the corporation's assets, both tangible and intangible. It also allows the corporation's liabilities to be identified. 3.3 Third, the purpose is to protect the interests of the corporation's creditors. 3.4 Fourth, it serves the purpose of enabling evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation. 3.5 Fifth, it assists in the regulation of corporations by providing a public forum for the examination of examinable officers of corporations. 4. If an eligible applicant applies for an order for the examination of a person for a purpose unconnected with the purposes authorised by the legislation that will be an abuse of process and the order, if obtained, will be set aside. 5. The procedure may not be used to allow a party to obtain a forensic advantage and, if it is, any order obtained will be set aside. 6. The procedure may not be used as a dress rehearsal for the cross-examination of a person in a pending or subsequent action. However, it is not improper to seek an order of the Court to summon a person for examination whilst litigation is pending against that person or entities connected with that person. 7. The question whether in any particular case the applicant has used the procedure abusively will depend upon the applicant's purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose. 8. It will be an offensive purpose if the application cannot be characterised as being for the benefit of the corporation, its contributories or creditors. 9. A creditor may, if first authorised by ASIC, apply to the Court for an order to summon for examination a person for the purpose of obtaining information in relation to a debt owed to the creditor if such an examination would be in the interests of the corporation or its creditors as a whole. 10. A creditor may not use the procedure for the purpose of obtaining a forensic advantage which would not have been available to the creditor if the corporation had not gone into administration." 37 The liquidators say quite candidly that they wish to conduct examinations of the examinees for three reasons, first, to test their preliminary view that the Commercial List claims have good prospects of success (and, as Mr Wily put it, to obtain more information about the aspects he considers to be less promising), second, because demonstration of a sufficiently viable case through material obtained from such examinations is, in essence, a prerequisite to any positive decision by the potential litigation funder to provide financial assistance and, third, in order to investigate recovery possibilities unconnected with the Commercial List proceedings. 38 None of these purposes is an objectionable purpose. In particular, neither of the first two purposes is objectionable. The desire to test the preliminary view about the viability of the litigation is within Lander J's paragraph 3.4. The purpose of creating a forum for the obtaining of information relevant to a litigation funder's decision whether to extend financial support stands in the same light. Mr Newlinds referred, in that last connection, to two decided cases to which I now turn. 39 The first is the decision of Gzell J in Re Clutha Ltd; Cuming v Abbey [2003] NSWSC 235; (2003) 44 ACSR 134. In that case, a creditor had already agreed to finance litigation to be brought by the liquidator against the company's directors. The creditor had done so against an expectation of resort to s 564 if the litigation was successful. The funding creditor wished to make its own assessment of the insurance held by the directors. In holding that the purpose of facilitating that assessment was not an objectionable purpose bespeaking abuse of process by the liquidator Gzell J referred to Re Laurie Cottier Productions Pty Ltd (1992) 9 ACSR 513 where it was held by Waddell CJ in Eq that there was no abuse of process merely because the liquidator's examination, funded by a particular creditor, might enhance that creditor's prospects of recovery. 40 The second case referred to by Mr Newlinds is Fetzer v Irving [2005] SASC 53; (2005) 52 ACSR 354. Besanko J there said at [25]: "The appellant's primary submission was that it was arguable that the liquidator simply acted at the direction of the person providing the funds for the litigation and that that was an improper purpose. Put in those terms, I do not think that the submission is correct. A liquidator may without any impropriety enter into a litigation funding agreement and under that agreement he may be asked, or even directed, to conduct an examination under Pt 5.9 of the Corporations Act 2001. He may not otherwise be able to pursue the action for the benefit of the company's creditors. Those facts of themselves do not amount to an improper purpose on the part of the liquidator." 41 It is clear from the cases mentioned that a purpose of gathering information properly required by a party deciding whether to fund litigation to be pursued by a liquidator for the benefit of creditors is not of itself an improper purpose. It is a purpose clearly and sufficiently related to the due performance of the liquidator's functions. 42 In cases of this kind, however, the inquiry is as to predominant purpose. A clearly impermissible purpose is that of conducting a dress rehearsal for cross-examination or seeking to assemble material in order to attack a potential witness's credit. Dr Bell submitted that, in the circumstances of this case where the examinees will most likely be witnesses in the Commercial List proceedings, an impermissible purpose of that kind must be taken to be the predominant purpose of the liquidators. 43 I do not accept that submission. The Commercial List proceedings are at an early stage. The summons has been filed and served, although it appears that service was effected after one extension of time for service had been obtained and in circumstances where it may have been thought that a further extension would be impossible or difficult to obtain. No defence has been filed. Issues have not be delineated. The evidence on which the LED companies will rely has not been served - indeed may not have been fully assembled. The situation is, in my view, one in which the desire of the liquidators and the potential funder to obtain further information about prospects of success has an objectively valid basis to it. 44 The early stage reached in the litigation, as thus described, undermines the theory that the liquidators will, through the examinations, seek to embark on a dress rehearsal for cross-examination. In Fetzer v Irving (above), where an inference of such a purpose was held to be open, the action had "progressed a considerable way along the path to trial" and discovery had been had. 45 In the whole of the circumstances before me, I cannot find that the liquidators' predominant purpose is an impermissible purpose of seeking a forensic advantage in the embryonic litigation. Their predominant purpose is, rather, to put themselves into a position from which they can make a final decision whether to pursue the litigation they have inherited and the active carriage of which has been realistically available to them for only about three months, coupled with the purpose of putting a potential funder into an informed position from which it can make a decision whether to make finance available. These are quite legitimate purposes for undertaking s 596B examinations, as is the liquidators' third purpose mentioned at paragraph [37] above. 46 The examinees have not established a basis for the making of an order discharging the examination summonses. 47 Dr Bell submitted that, if the summonses were not discharged, there should be a direction under s 596F(1)(a) limiting the matters that may be inquired into at the examinations. The direction would be in terms that precluded examination on matters relevant to the Commercial List proceedings. For reasons stated in relation to the main question, no such direction should be made. 48 In the result, therefore, the orders of the court are: 1. Order the interlocutory process filed on 18 August 2009 by Donald Geoffrey O'Brien, Herbert Ralph Moll and Cameron Hume be dismissed. 2. Order that the applicants under that interlocutory process pay the costs of the respondents. 49 I should add that the interlocutory process includes a claim in respect of an order for production served on RSM Bird Cameron. Since Dr Bell indicated that that claim is not pressed, it is appropriate for it to be caught by the order of dismissal. **********

Ariff v Fong

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