Bufalo Corporation Pty Ltd [2002] VSC 107 (11 April 2002)

5. Andrews was appointed administrator of the company on 27 June 2001. His appointment was confirmed at the first meeting of creditors held on 4 July 2001. At the second meeting of creditors held on 24 July 2001 it was resolved that the company be wound up and Andrews was appointed liquidator. He determined that he wished to have nine persons examined under s 596A and s 596B respectively and accordingly made the application which Byrne J heard on 8 November 2001. The application was heard ex parte in the usual way. In addition to the three above examinees, Byrne J made orders providing for the examination of four persons under s 596A and for the examination of two other persons under s 596B. All nine examinees have been served with summonses. It is only Sent, De Luca and Porter who have sought the discharge of the examination summonses served on them.

8. The summonses served on Sent, De Luca and Porter required them both to produce documents and to attend for examination. Production of documents was scheduled for 4 March 2002. I was informed that they would comply with the requirement to produce documents. However, they object to their proposed oral examination.

11. It remains to mention at this point that on 10 August 2000, prior to Andrews appointment as administrator, Primelife Corporation Ltd ("Primelife") appointed Gideon Rathner as receiver and manager of the company pursuant to a debenture charge dated 21 December 1998 ("the debenture"). Sent has been a director of Primelife since 30 October 1997, with the exception of three days in November 1997. Anthony De Luca was a director of Primelife from 2 October 1995 to 30 November 2001 and Porter was secretary of Primelife from 14 October 1997 to 27 September 2000.

15. The applicants' interlocutory process seeks orders that their examination summons be discharged, alternatively a direction pursuant to s 596F(1)(a) of the Act that the matters inquired into on their examination not include any issue the subject matter of proceeding 6668 of 1999[1]. Orders are also sought permitting them to inspect all affidavits filed in support of the liquidators application under s 596B, and to cross-examine the liquidator on such affidavits. The applications came on for hearing before me on 25 February 2002.

18. Rule 11.5(2)(b) of the Rules provides that an application for an order discharging an examination summons be supported by an affidavit stating the facts in support of the application. None of the applicants swore such an affidavit. The course taken was that their solicitor, Leonard Adrian Warren of the firm Russell Kennedy, swore an affidavit in support of their applications. In fact he swore three affidavits. He was not cross-examined. No affidavit was sworn by or on behalf of the liquidator in answer to Warren's affidavits or otherwise in opposition to the application to discharge the examination summonses.

21. In addition the applicants served a subpoena on Andrews which, in summary, required him to produce books and records relating to the provision of funds by any third party in support of the administration and liquidation of the company, and proceeding 6668 of 1999. The aim was to ascertain the identity of any person who in the past has, or now is, providing funding to the liquidator. During the hearing counsel for the applicants made a call for documents pursuant to the subpoena. The call was opposed by counsel for the liquidator, who objected that the subpoena should be set aside as it lacked particularity, was too wide, amounted to fishing, constituted improper discovery, and was irrelevant to the present issue. In the end, counsel for the applicants did not press for a ruling on the efficacy of the subpoena. Rather, he proceeded with his submissions leaving it to me to consider the matter of production under the subpoena along with the other issues raised by the interlocutory process including inspection of the liquidator's affidavits and cross-examination of the liquidator. He did however limit the call under the subpoena, correctly in my view, by not persisting with para 3 which required production of:

"All books and records relating to any agreement or understanding that any creditor may or would receive an advantage not received by all other creditors".

25. The final point to note at this stage is that the parties invited me to read the liquidator's affidavits filed in support of his application for the issue of the examination summonses, and consider them in reaching my decision. That course is clearly sanctioned by the authorities. It is common ground there were two such affidavits but they have not been seen by the applicants.

29. It is convenient to state who the various examinees are, in addition to the present applicants Sent, De Luca and Porter.

(a) Rathner, the receiver and manager of the company appointed by Primelife pursuant to the debenture, and (b) Giovanni (or John) Bufalo, Guiseppe (or Joe) Bufalo and Antonio (or Tony) Bufalo (collectively referred to as "the Bufalos").

Rathner is a chartered accountant and partner of the firm Lowe Lippman. He continues in office as receiver and manager of the company. John and Joe Bufalo were directors, and Tony Bufalo was general manager, of the company.

37. The s 596B examinees, in addition to Sent, De Luca and Porter, are Mark Darrer, a solicitor of the firm Darrer Muir Fleiter, and Zac Andrejic. It seems, or at least it is alleged, that Darrer acted on instructions from Primelife and prepared documents or advised in circumstances that might have constituted also acting for the company and the Bufalos, or in which a duty was owed to them. The role he played would arise for consideration in proceeding 6668 of 1999.

41. At the nub of the applicants' submissions is a concern as to the prejudicial effect the examinations may have on the ability of the respondents to proceeding 6668 of 1999 (which respondents include Primelife and Sent) to defend the claims against them, and of Primelife to prosecute its counterclaim in that proceeding. That is not to say that the only concern of the liquidator in seeking the examinations of the nine named persons is to be enlightened on matters concerning that proceeding. But that proceeding, and the apprehended effect of the examinations in relation to it, is the focus of the applicants' submissions. Accordingly I now refer to that proceeding. I note that at the applicant's request the Court file of that proceeding was in court during the hearing and, in addition to being referred to the pleadings, I was referred to a number of other events that had occurred in the conduct of the case. I have perused the file to ensure that I have a proper overview and understanding of that proceeding and, hence, of the submissions made to me.

45. On 30 August 1999 the company commenced this proceeding against Primelife, Wattletree Road Developments Pty Ltd ("Wattletree Road Developments") and Sale Manor Gardens Pty Ltd ("Sale Manor Gardens") as respondents. It was brought by Notice of Motion (Special Application) under s 246 AA and s 461(1)(k) of the Corporations Law.

48. On 3 September 1999 Mandie J directed that pleadings be filed and served, and a statement of claim was duly delivered. In October 1999 the Bufalos were added as applicants and Sent was added as a respondent. In November 1999 a second amended statement of claim was filed and served, to which a defence was filed in December 1999. Counsel for the applicants took me to those pleadings to understand the issues in the case.

51. Then, in March 2000 Primelife filed a counterclaim against the company, the Bufalos and Sale Manor Gardens. A defence to counterclaim was filed in April 2000. The firm Darrer Muir Fleiter was added as a third party, and in July 2000 it filed a defence.

54. It will be recalled that on 10 August 2000 Rathner was appointed receiver and manager of the company by Primelife. He instructed solicitors, Holding Redlich, who from that point acted on behalf of the company in lieu of the solicitor who had previously acted.

57. It is now convenient to refer in a summary way to the issues in the pleadings.

60. The following facts are admitted. The company carried on business as a builder. Primelife carried on business developing, managing and operating aged care facilities including retirement villages and special accommodation houses. The company and Primelife owned the share capital in Wattletree Road Developments and Sale Manor Gardens in the proportions of 49 and 51 per cent respectively, and Sent had been a director of those companies since September and December 1998 respectively.

63. It is alleged in the statement of claim that the company and Primelife entered into a joint venture agreement in or about March 1997 to undertake the joint purchase, development, sale, management or operation of special accommodation houses and retirement villages. The expertise of the company, on the one hand, was as a builder, and of Primelife, on the other hand, was as a developer and manager of aged care facilities. Primelife is a listed public company. The agreement is alleged to be oral and to have been made in a meeting between Sent on behalf of Primelife and Tony Bufalo on behalf of the company. A raft of express terms are alleged by the company, all of which are oral. They relate to what one or the other of the company and Primelife should do in pursuance of the joint venture. One term was that the company would become a shareholder in Primelife. There were also alleged to be implied terms to act in good faith, not act to the detriment of the other party, and to deal with property in accordance with the joint interests of the parties. By their defence, Primelife and Sent denied all of these allegations.

66. The second amended statement of claim then pleaded, and it was admitted, that the company became the holder of 563,202 fully paid ordinary shares, and 258,712 convertible preference shares, in Primelife. Then the company makes allegations of things alleged to have been done pursuant to the oral joint venture agreement. Primelife and Sent's defence continues to deny the joint venture agreement. It also contains further denials and makes some positive pleas as to the facts. This relates to a number of properties developed or to be developed for the purpose of the joint venture agreement. It is unnecessary to go into detail. The second amended statement of claim runs to 91 paragraphs and there are the other pleadings mentioned. What is clear is that the company's case is based on an agreement and terms which are entirely oral, with perhaps some relevant implication, which is denied, and there are many issues of fact concerning matters such as variations of the agreement, performance and various development projects.

69. The second amended statement of claim then alleges, and it is admitted, that under a loan deed dated 21 December 1998 John Bufalo borrowed $1,060,000 from Primelife. For better securing John Bufalo's obligations, Joe and Tony Bufalo, and the company itself, gave Primelife a guarantee, the company gave Primelife the debenture over the whole of its assets and undertaking, and the company and John Bufalo each gave Primelife a mortgage over certain assets. Subsequently, Primelife gave notices to pay pursuant to the securities. It is alleged by the company and the Bufalos that in fact no amount was then payable and that, in consequence, Primelife's notices were invalid. This is denied by Primelife.

72. The second amended statement of claim then seeks the winding up of Wattletree Road Developments and Sale Manor Gardens under the oppression provisions. There is a mixture of admissions and denials here.

75. Then there is a quantum meruit claim for work done by the company on eight properties. This claim is denied.

78. Finally there is a plea of misleading and deceptive conduct. This is based on an oral representation by Sent to Tony Bufalo that Primelife would arrange for the agreement alleged in para 24 of the second amended statement of claim to be documented and that such documents would give effect to the agreement. A bundle of documents were prepared which the company and the Bufalos executed in reliance on the representation. The documents were prepared by Darrer on the instructions of Primelife and Sent. It is alleged that Darrer did not explain them to the company and the Bufalos. It is alleged that in fact the documents recorded an agreement of a different and unintended kind not appreciated by the company and the Bufalos when executing the documents. This part of the claim concludes with an allegation that the company and John Bufalo suffered loss and damage. The defence denies all allegations.

81. In his submissions, counsel for the applicants took me to the plea of the oral joint venture agreement, and stated that it was sufficient to demonstrate, for the purpose of the present application, the nature of the case made against Primelife. In other words, it was sufficient to enable the vice in the examination process to be demonstrated. He made little reference to the balance of the claims. They were noted but passed over. Accordingly, I do not now further elaborate the issues in the pleadings or the relief claimed, except to note that the relief claimed by the company against Primelife and Sent included an injunction to restrain Primelife acting on the notice to pay given under the guarantee and a separate notice given under the debenture, the winding up of Wattletree Road Developments and Sale Manor Gardens, and several other heads of relief. John Bufalo claimed the like injunction and damages against Primelife and Sent. Joe and Tony Bufalo claimed an injunction to restrain Primelife from acting under the notice to pay given under their respective guarantee.

84. The counterclaim is based on a number of written agreements which the company and the Bufalos and others executed on or about 21 December 1998. They include the debenture. As I understand it, with only one exception (an agreement called the liquidators' agreement which they admit entering into), the agreements are those which the company and the Bufalos allege they were induced to sign by reason of the false and misleading conduct of Primelife and Sent.

87. The counterclaim seeks the enforcement of the various agreements according to their terms. It does not plead an oral agreement. The defence to counterclaim raises a number of issues in addition to the fundamental allegation in the second amended statement of claim that, in effect, the respective documents were signed under a mistaken belief as to their true nature and effect, induced by the false and misleading conduct of Primelife and Sent.

90. I return to noting some events in the chronology of the proceeding.

93. On 10 October 2000 the solicitors then acting for the Bufalos, Rosendorf Lawyers, filed an application for leave to amend the second amended statement of claim. Warren J, who had the management of the case in 2000 and 2001, ordered that the proposed amendment be served in draft. On 16 November, Holding Redlich (acting for the company on the instructions of the receiver and manager) wrote to Rosendorf Lawyers noting that the amendments purported to amend the claim of the company, that the amendments had not been authorised by the receiver and manager, and that contemporaneous documents not only did not support the allegations but were inconsistent with them. Concern was expressed about costs and a meeting was suggested. In the absence of substantiating evidence, the receiver and manager would take steps to discontinue the proceeding of the company at the directions hearing on 17 November 2000.

96. At the directions hearing on 17 November, Warren J was informed that the receiver and manager wished to apply to discontinue the company's proceeding.

99. The response of the Bufalos was to file, on 27 November, an application for leave for them to continue the proceeding in the name of the company. Primelife and Sent responded, on 11 December, with an application for security for costs against the company and the directors if they were given leave to continue the claim. Then, on 13 December, the receiver and manager filed an application for leave to discontinue the company's proceeding or for an order that its proceeding be stayed until the directors indemnified the company. In an affidavit, the receiver and manager stated that he had legal advice that it was in the interest of the company to discontinue.

102. Ultimately on 10 April 2001 Warren J referred the applications to the Listing Master for hearing and determination. Subsequently, 15 August 2001 was fixed as the hearing date.

105. It was in these circumstances that the directors appointed Andrews administrator of the company on 27 June 2001. In an affidavit sworn in the proceeding on 15 August 2001, Andrews stated that:

"From the outset it became apparent this was to be a large and complex administration such that it would be necessary to obtain a significant amount of information and advice from numerous sources to establish the nature and extent of Bufalo's assets and liabilities, the majority of which comprised claims the subject of legal proceedings before the Court. As such I appointed solicitors Tress Cocks and Maddox and set about doing so."

109. Andrews then commenced to seek information from a number of sources including Primelife, Rathner, Rosendorf Lawyers, the solicitor originally acting for the company and the Bufalos. On the basis of what he described as "limited information", and while he was awaiting further information, he prepared a report to creditors dated 17 July 2001 for the purpose of the second meeting of creditors of the company. The report stated assets and liabilities to be $21,250,000 and $20,393,000 respectively, the majority of which comprised claims the subject of legal proceedings before the Court. He ascertained from an affidavit sworn in the proceeding by Rathner on 11 December 2000 that the company's most significant liability was a contingent liability of $14,955,247, comprising Primelife's counterclaim in the proceeding, which it sought to recover under the debenture. Andrews formed the view that the preferable option for creditors was to wind up the company, as it was insolvent on a cash flow basis, and he so reported. At the creditors' meeting on 24 July 2001 it was resolved that the company be wound up and Andrews was appointed liquidator.

112. Andrews continued his efforts to obtain information to establish the nature and extent of the company's assets and liabilities and, in particular, the claims the subject of the proceeding. But time was short before the hearing before the Listing Master on August 15. Andrews required an adjournment to enable further consideration of the information thus far received, to collect further information, to obtain advice in respect of that information, and to obtain advice in relation to the monies secured by the debenture, Andrews' standing, and the merits of the application before the Listing Master and generally. The adjournment was opposed. As a result, the hearing proceeded on 15 August. It seems that some matters were concluded then and there, and that the Listing Master reserved on some matters. She gave judgment on those matters on 27 September 2001. The result of the various applications was as follows.

115. As the company was then in liquidation, the Bufalos did not press their application filed on 27 November 2000 for leave to continue the company's proceeding. Indeed they did not appear before the Listing Master on 15 August and their application was dismissed with costs. The Bufalos' application filed on 10 October 2000, to further amend the statement of claim, was dismissed with costs. The application of Primelife and Sent filed on 11 December 2000 for security for costs against the directors was withdrawn with costs reserved and that interlocutory process was otherwise adjourned to 14 November 2001. That left the receiver and manager's application, filed 13 December 2000, for leave to discontinue. This aspect was concluded on 15 August. The Listing Master granted conditional leave to discontinue the company's proceeding. She ordered that:

"1. Unless the Liquidator of the Firstnamed Applicant notifies in writing the Receiver and Manager of the Firstnamed Applicant, First and Fourthnamed Respondents by 4.00 p.m. on 30 October 2001 that he proposes to continue the proceeding by the Firstnamed Applicant, then the Firstnamed Applicant is granted leave to discontinue its claims against the Respondents upon the following terms:

a) the Firstnamed Applicant pay the First and Fourthnamed Respondents' costs of and incidental to its claim against the First and Fourthnamed Respondents herein, including all reserved costs;

b) the Firstnamed Applicant not bring any proceeding, make any claim or seek any relief against the Respondents as that brought, made or sought by the Firstnamed Applicant against the Respondents herein.

[Paragraphs 2 and 3 dealt with costs.) 4. If the Liquidator of the Firstnamed Applicant notifies in accordance with paragraph 1, a directions hearing be held on 14 November 2001."

122. Under these orders the liquidator was allowed further time in which to consider whether to continue the company's proceeding. If he decided to continue it, there would be a directions hearing on 14 November 2001. That is why the application of Primelife and Sent for security for costs against the company was adjourned to that date. Of course, it was only if the liquidator elected to continue the proceeding that he could become liable for costs. Until then, the company remained in the proceeding under the control of the receiver and manager who had a continuing potential liability for costs.

125. The liquidator continued to seek information concerning the financial position of the company and the proceeding 6668 of 1999.

128. The liquidator determined that he required the benefit of examinations under s 596A and s 596B to facilitate an appropriate investigation of various matters concerning the company and better enable him, among other things, to determine his attitude to proceeding 6668 of 1999. Accordingly, acting on legal advice, on 18 October 2001 he swore an affidavit in support of the application for public examinations. He swore a further affidavit on 7 November, in support of the application and, as already noted, Byrne J made orders for the issue of examination summonses on 8 November.

131. Meanwhile, time was running under the Listing Master's order. To deal with the risk of the order self executing against the liquidator, before he was in a position to ascertain and evaluate the relevant circumstances, the liquidator filed an interlocutory process in proceeding 6668 of 1999 for an extension of time. The order sought was that the time in the Listing Master's order be extended to the later of eight weeks from an order on the application, or 30 days from the completion of examinations in relation to the company pursuant to s 596A and s 596B.

134. This application was supported by an affidavit sworn by the liquidator on 24 October 2001. The affidavit recounted the liquidator's investigations and referred to the various people from whom he had sought information. The liquidator stated that at a conference on 3 October 2001, he had been advised by his counsel and solicitors that they were not in a position to provide advice as to the prospects of success of the claims in proceeding 6668 of 1999 and that it was necessary and appropriate for him to conduct public examinations. Accordingly, he had commenced that application on 18 October. The liquidator went on in his affidavit to elaborate the difficulties confronting him in deciding whether to elect to proceed with the company's claims in proceeding 6668 of 1999. These were, first, that he did not have all relevant documents, and, secondly, that critical facts in the proceeding were largely based on oral conversations which may or may not be disputed and which required further inquiry prior to trial. Subject to that, he believed that the company may have an arguable case, possibly entitling it to substantial damages. But he needed time for further investigation, consideration, and advice from his lawyers, to determine whether the company's case could be proved, and to evaluate the case.

137. The liquidator's application was heard by the Listing Master on 26 October 2001. On 25 October, Rathner swore an affidavit which seems, on its terms, to have been directed to opposing the application. It dealt with the availability of information to the liquidator and indicated that he had not been as assiduous as he might have been in gathering information.

140. After hearing argument, on 31 October 2001 the Listing Master extended the time for the liquidator to elect whether to continue with the company's proceeding until 22 November 2001.

143. On 1 November 2001 Primelife and Sent filed an interlocutory process in proceeding 6668 of 1999 seeking orders which would, in effect, compel the liquidator to undertake a sort of limited discovery process in proceeding 6668 of 1999. It was limited in that the liquidator was to be required, before he had decided to continue with the company's proceeding, to serve a notice on Primelife and Sent appointing a time to inspect documents referred to in a notice from Primelife and Sent. It was also to be ordered that the liquidator have leave to seek discovery from, and serve interrogatories on, Primelife and Sent. The application came before Master Evans on 5 November. He dismissed the application on the basis that as the case was under the control of a judge he had no jurisdiction in the absence of a reference. In any event, it must be recalled, at this stage the liquidator had not elected to come into the proceeding.

146. As noted, on 8 November 2001 Byrne J made the orders for the issue of examination summonses.

149. On 22 November 2001 the Listing Master further extended the time for the liquidator to elect whether to continue with the company's proceeding until 7 December 2001. The security for costs application of Primelife and Sent was adjourned to the same date.

152. On 7 December 2001 the Listing Master further extended time in the following terms:

"Unless the order of Byrne J made 8 November 2001 in proceeding 8005 of 2001 is set aside or the dates allocated by the Court for the conduct of the examinations pursuant to the order are adjourned, extended or refixed to or on dates after 23 April 2002, the date referred to in order 1 of the Listing Master's orders made 15 August 2001 be extended to 7 May 2002."

158. On 22 November 2001, the Federal Magistrates Court made a sequestration order against the estate of Tony Bufalo. A copy of the order of sequestration was exhibited to one of Warren's affidavits. It states that the applicant in the proceeding was the company and that the Bufalos were the respondents. It is clear that the application was instigated by Rathner as receiver and manager of the company. For one thing, the liquidator did not take the application. For another, Rathner's solicitors, Holding Redlich, are identified at the foot of the order. Finally, it was Holding Redlich who informed Warren of the order and of the position concerning the other respondents.

161. In correspondence with Warren, the Official Receiver has advised that the Official Trustee does not intend to proceed with or oppose the claims in proceeding 6668 of 1999.

164. Warren further stated in his affidavit that the creditor's petition against Joe Bufalo was to be heard on 12 February 2002. I was informed by counsel that a sequestration order was made against his estate.

167. Finally, in relation to John Bufalo, Warren produced a letter from Holding Redlich which advised that an application for substituted service of the creditor's petition would be heard on 15 February 2002. I was not informed of the result on that day or of any later development.

171. In his affidavit Warren stated, and it is not disputed, that the liquidator is not in possession of any of the assets of the company and is not being funded by the receiver and manager. Warren was also advised by Rathner that, based on the amount claimed by Primelife under the debenture, the assets of the company appeared insufficient to discharge the amount claimed.

174. Warren further exhibited to his affidavit a letter from the liquidator to Rathner, dated 10 September 2001, in which he stated that he had been provided with an advance from an unrelated third party to assist him in his inquiries.

177. Warren also swore that at the second meeting of creditors of the company on 24 July 2001 the liquidator, in response to a question, stated that he had received funding of $10,000 from Tony Bufalo for fees and legal advice and that he would look to creditors to fund an action against Primelife. There are differences between this account and the minutes of the meeting prepared by the liquidator and filed with the Australian Securities and Investments Commission. The minutes state that the liquidator said that he would not divulge the amount of the funding at that point. The minutes further stated that there was no arrangement in place for the future.

180. Finally, on this matter, Warren's principal affidavit made extensive reference to evidence and findings in a trial held in this Court late last year.[2] The claim was brought by the company, on the instructions of the receiver and manager, for possession of premises occupied by the defendant. During the trial Tony Bufalo and the defendant gave evidence and, in relation to credit but not to an issue for determination in the case, questions arose in their cross-examination as to the funding of the liquidator.

183. In the course of his evidence Tony Bufalo said, and then denied, that he was funding the liquidator. In her evidence, the defendant referred to several different people funding the liquidation, then said that she had knowledge of one person. She refused to say who that person was.

186. In his affidavit Warren asserted a strong suspicion that the liquidator is funded by monies received by Tony Bufalo or interests associated with him. Assuming the suspicion to be correct, Warren asserted that the use of funds in this way was improper as they should have been applied for the benefit of Tony Bufalo's creditors. Then, Warren further asserted, if Tony Bufalo or interests associated with him are funding the liquidator in relation to the public examinations, it may be part of a course of conduct designed by the Bufalos to frustrate the recovery by Primelife of monies claimed in the counterclaim.

190. Section 569C(1) of the Act provides that the affidavit in support of an application under s 596(B) is not available for inspection except so far as the Court orders. Further, Rule 11.3(3) and (4) requires that an application for the issue of an examination summons under s 596A or s 596B be by originating or interlocutory process supported by an affidavit, and that such process and affidavit be placed in a sealed envelope. Rule 11.3(7) provides that, unless the Court otherwise orders, the affidavit in support of an application is not available for inspection by any person.

193. As noted above, the applicants seek an order that they be entitled to inspect the affidavit material filed in support of the liquidator's originating process filed 18 October 2001. There are two such affidavits, both sworn by the liquidator, who opposes their production. The applicants also seek leave to cross-examine the liquidator on his affidavits, if so advised. That application is premature. It will only arise for consideration if the primary application to inspect is successful and if, following inspection of the affidavits, leave to cross-examine is sought.

196. The need for confidentiality of an applicant's affidavit is well recognised, and readily understood. So too is the need for and purpose of the public examination process. The applicant, such as the liquidator in this case, is a stranger to the corporation and needs to be informed about the corporation's "examinable affairs"[3], knowledge of which lies in other people. It is in the interest of creditors, shareholders and the public generally, particularly in the case of a public company, that the liquidator be aware of relevant matters and able to make informed decisions in the course of the performance of his or her duties as liquidator.[4] The applicant for the issue of examination summonses needs to inform the Court why it is appropriate, generally and in relation to the proposed examinees, to have an examination. What is thus disclosed to the Court may preferably not be disclosed to an examinee, for to do so would expose, or at least tend to expose, the knowledge or lack of knowledge of the applicant of matters to be inquired into, their relevance and relative importance, and other matters. Disclosure to an examinee may frustrate the purpose of the examination or otherwise result in some other disadvantageous effect.[5] The Act recognises, and so do the authorities, that it is appropriate for the applicant to conduct the matter in a secretive manner. In addition to the confidentiality of the affidavit, the applicant is not required to give notice of the questions to be asked. The process is inquisitorial. It is important in these respects, in particular in the reliance placed by the Court on an applicant seeking examination summonses, that it is only those persons who are eligible applicants, as defined in s 9 of the Act, who may make application. In this case, the applicant Andrews is a registered liquidator, an official liquidator of this Court, and the liquidator of the company.

199. The authorities established that the Court had a discretion to order disclosure to an examinee of an applicant's affidavit and that disclosure should be ordered where the justice of the case so required[6]. But the discretion was not at large, and it could not be, for otherwise the purpose of the examination process might be thwarted. Hence the question is whether the examination summons was sought for an improper purpose. The discretion may also arise if the applicant for the examination summons failed to disclose a material matter to the Court on the hearing of the application which is usually made ex parte. An examinee seeking disclosure of the applicant's affidavit must establish an arguable case for setting aside the order for the issue of the examination summons. In other words, there is an onus on the examinee seeking disclosure, which counsel before me accepted the examinees had to satisfy, to place materials (not including the affidavit to which access is sought) before the Court, from which it appears there is an arguable case. It is not sufficient that it appears that there is an arguable case, the examinee must go further and show that the affidavit of which production is sought will or ought be relevant to that arguable case and that the failure to disclose the affidavit would unfairly prejudice the examinee in establishing the application. If that onus is satisfied the discretion to order disclosure arises. Among the cases referred to by counsel which established these propositions were Re Excel[7]; Simionato[8]; New Zealand Steel (Australia) Pty Ltd v Burton[9] and Re Southern Equities Corporation Limited (in liq); Bond v England[10].

203. In their written and oral submissions, counsel for the examinees sought to establish an arguable case that their examination summonses were obtained for an improper purpose. The central point is that the examinations would unfairly advantage the liquidator, and disadvantage Primelife and the examinees, in the context of the pending litigation.

206. It is pointed out, and it is the fact, that the examinees are not and never were officers of the company. Rather, they are or were officers of Primelife. It is submitted that their examination, in the context of the pending litigation, is a fishing expedition, "a trial run for the litigation", and that Primelife and Sent should not be seriously disadvantaged by reason of the appointment of a liquidator to the company. That part of the submission is readily understood but a confusion was introduced by a further contention that, as a result of the company going into liquidation, the liquidator could not have a greater right than the company would have had. This contention was misconceived. The contention fundamentally misapprehended the role and position of the liquidator, as distinct from the company. The liquidator is appointed with certain powers and duties. He must, as soon as practicable, come to an understanding of the company's assets and liabilities, including any relevant claims concerning them, and take such action as may be appropriate in relation to them. In respect of the pending litigation, he is under pressure, including the constraint of an order of the Court, to act quickly in forming a view as to whether to continue the company's claim in the litigation. Time is not on his side. He is being forced to make a decision quickly. When, in that regard, he deemed it appropriate, on legal advice, to have the advantage of the public examination process he acted as an independent person under his appointment pursuant to the specially conferred legislative provision for public examinations. These provisions give to a liquidator "rights not possessed by an ordinary litigant".[11] They enable him to "obtain information for the proper winding up of the company or its affairs". [12] As Cohen J further said in Re Spedley, "There is no particular significance in whether proceedings are not yet contemplated, are about to be commenced or have already commenced as long as there is a legitimate basis for obtaining information".[13]

209. It follows, and it is well established, that an examination, even when there is litigation pending, may go to the subject matter of that litigation.[14] The limits to what may be asked in the examination and, indeed, as to when an order for an examination summons may be made, are to be found in an identification of the purpose of the examination. Is it to better enable the carrying out of the liquidation, or to use the occasion in a manner in relation to the pending litigation that constitutes an injustice and a misuse of the legislation.

212. Thus, the possibility that an examination will provide a forensic advantage to the liquidator does not necessarily mean that the examination will be for an improper purpose. In Re Excel[15] a number of examples of what would constitute an improper purpose were given: to examine a probable witness in litigation to destroy his or her credit, to conduct a dress rehearsal of cross examination in litigation, to obtain discovery where it had been refused in litigation, and otherwise in circumstances which might be held to constitute an abuse of the process. But for a liquidator to merely ask questions about a pending case in order to become aware of relevant matters does not constitute an improper purpose.

215. In the Hong Kong Bank case the respondents, who had commenced litigation against the corporate appellants, obtained orders for examination summonses which the appellants sought to have set aside. It was held that on the findings of McLelland J at first instance the orders should stand. McLelland J found that the purposes of the respondents were to obtain information which might assist them in prosecuting causes of action presently pending, to determine whether any of those causes of action should be abandoned, and to ascertain whether any other causes of action should be commenced, and that those purposes were neither vexatious or oppressive. After referring to these findings Gleeson CJ said[16] that these were legitimate purposes and that there was no reason for the Court of Appeal to conclude that the actual conduct of the examinations would transgress the limits referred to by Street J in Re Hugh J Roberts Pty Ltd (in liq).[17] I might add that a difficult or doubtful case is just as likely to be abandoned, as it is to be pursued, as a result of an examination process.

218. I note that in Re Southern Equities Corporation Lander J, with whose judgment Cox and Bleby JJ agreed, said that the application will be held to have been made for an improper purpose if such purpose is the "predominant" purpose of the application for the examination summons. [18] However in the earlier decision in Hong Kong Bank Gleeson CJ, with whose judgment Mahoney and Priestley JJA agreed, referred to the improper purpose as being the "sole" purpose.[19] The latter view is understandable, for in the type of case there in question there is "no strict dichotomy between an advantage to be gained by an applicant for an examination order, such as a liquidator, in the capacity of a litigant, and a benefit that might flow to creditors, or contributories, or members of the public, from the conduct of an examination"[20]. In other words, there might be more purposes than one, proper and improper, and in such a case the examination will not be for an improper purpose.

221. At an early point in the submissions of counsel for the examinees it was emphasised that the company's claim in the litigation is based on conversations. The case against Primelife and Sent was described as "unusual" and they were said to be placed at a special disadvantage as a consequence of the public examination process. Whereas at a trial, the company's witnesses would give evidence before the Primelife witnesses, the public examination process would give the company and the Bufalos prior knowledge of the evidence of the Primelife witnesses and hence a collateral benefit in conducting the litigation. I can say at once I do not consider a case based on conversations to be "unusual", or at least not in any sense relevant to the present application. It became clear in argument that the word "unusual", so often repeated in counsel's submissions, was taken from some brief remarks of Justice Warren made in the course of a short hearing when her Honour informed the parties she could not hear the application for orders for examination summonses. What her Honour then said, in the course of one sentence, was not said on the hearing of the application. Her Honour observed to counsel for the liquidator that it was at least an arguable position that the proposed examinees be given notice of the application "given its unusual circumstances". Her Honour might have had in mind the fact of the generally tendentious litigation, although that would be speculation on my part. In any event, her Honour's remark was not made on the hearing of the application, which came to be heard by Byrne J, and does not, and could not, in some way bind me in the determination of this application.

224. It was also submitted at an early point that it was unfair to the examinees to be denied the advantage of the liquidator's affidavits in making their submissions. This submission misapprehended the nature of the examination process and the issue before me. Then it was said that the liquidator could assess the merits of the case without a public examination. In other words, the public examination process was unnecessary. This apparently meant that I should conclude that the examinations were sought for an improper purpose.

227. Counsel then went on to develop the submission that the liquidator had obtained the order for examination summonses for an improper purpose. The improper purpose was to be found in one or other of the following points or perhaps all in combination together with the matters previously referred to.

230. The first point is that two of the three Bufalos are now bankrupt. It was submitted that "the Court should look at the substance of what is happening. Our case is that

. . . the Bufalos and their associates seek by bankruptcy to defeat the counterclaim and avoid orders for security for costs". This contention is quite without substance. The petitioning creditor in the bankruptcy proceeding is Rathner as receiver and manager of the company. It is not some friend or associate of the Bufalos. Rathner was appointed by Primelife and, far from being a friend or associate of the Bufalos, it is seen that he has done what he can to bring the curtain down on the litigation. He has sought to have the company's claim brought to an end and has petitioned for the bankruptcy of the Bufalos. In any event, the bankruptcy of the Bufalos has nothing to do with the liquidator.

233. Further to the above, it was submitted that by funding the liquidator, the Bufalos and other people such as Leone can prosecute the Bufalos' claim regardless of an election of the Official Trustee as trustee in bankruptcy not to proceed with a personal claim. Counsel for the liquidator pointed out that this submission overlooked that the chose in action constituting the personal claims was property in the bankrupt estate and liable to be dealt with as such. Moreover, assuming the liquidator has an arrangement which covers him for his present costs, it does not follow, ipso facto, that the Bufalos can or will prosecute their claim. The liquidator has duties and responsibilities in relation to the company. Any funding arrangement he may have must be for the purposes of the company in liquidation. If he prosecutes or defends a claim of the company successfully there may be fruits for the creditors and shareholders, and if the Bufalos then stand in such category they may benefit, but that is the result of success for the company, not the individual claims of the Bufalos. Moreover, all that is happening at the moment is that the liquidator is seeking to conduct a public examination of the three applicants. Even if there is a funding arrangement that covers his costs for that process, it does not follow that the liquidator will, following the completion of the public examination process and consideration of relevant matters, decide to continue with the company's claim or, indeed, that he will have a funding arrangement enabling him to continue with the company's claim. It is entirely unknown at this stage whether the liquidator will decide to continue with the claim and, even if he does, what the position will be with the prosecution of the Bufalos' claims.

236. Then it was submitted that the public examination process is being used to assist the Bufalos' interests rather than the interests of the company. That this was the case would be discovered, it was claimed, on a perusal of the liquidator's documents as to the source of his funding. The argument seemed to be that if the funder was the Bufalo family or their close friends, allies or acquaintances, the point would be established. This was coupled with a submission that the liquidator was bound to disclose to the Court, on seeking the order for the examination summonses, the identity of any funder, as that was a matter which might have led the Court to refuse the application. In my view there is a lack of logic in this submission. In the first instance, it is for the liquidator and his legal representatives to consider what should be advised to the Court on the application for examination summonses, and, having done so, to fully and frankly inform the Court of any relevant matter. Speaking generally, I do not consider it a requirement in every case that the Court be informed of the existence of a funding arrangement. In some circumstances it may be appropriate to do so. But it could not be said to be an invariable requirement. After all, there is no inherent vice in a funding arrangement. Such an arrangement can permit a good claim to be brought to trial which could not otherwise be prosecuted. Further, the existence of funding by a person such as a creditor, who may benefit from successful litigation, does not constitute an improper purpose in relation to an order for an examination summons[21]. Even if it were correct that the Buffalos, their family, friends, allies or acquaintances, were providing funding to the liquidator, and that the funder's purpose was to advance the interests of the Bufalos, it does not follow that in seeking to conduct the public examinations the liquidator is acting solely (or predominantly) in their interests and not in the interest of other creditors or not in the interest of being informed of relevant matters concerning the examinable affairs of the company, including the litigation, and in that regard assisting in determining whether to continue with the litigation in its present or an amended form.

239. Then, for a range of further reasons it was submitted that the use of the public examination process was improper. I deal with each in turn.

242. The first point was that by deferring the decision whether to continue the company's proceeding and moving to public examinations, the liquidator had subjected Primelife and Sent to a significant prejudice in the litigation. The prejudice existed in the following factors. First, if the liquidator had decided to continue with the company's claim in proceeding 6668 of 1999 the company would have been at risk on costs and Primelife and Sent could have proceeded with their application for security for costs. Secondly, as security would have been ordered, the company would have had to provide security before it could have obtained discovery and interrogated. However, by proceeding as he has the liquidator is not at risk on costs, and the examinees must both provide documents and answer questions in their examination and bear their costs subject only to the possibility of a contrary order under s 597B. It was submitted that these circumstances constituted a significant prejudice to Primelife and Sent in the litigation, of a kind that was foreign to that contemplated by the legislation.

245. On analysis, in my view, the submission is without substance. The appointment of the liquidator was valid and effective, and in obtaining orders for public examinations he pursued a course specially provided for by statute. Further, a judge has considered it appropriate to make the orders. In effect, the complaint is about the consequences of actions that the liquidator was open to take, and which he took on advice. Those consequences - a present inability to press the application for security for costs, the provision of documents and answering questions in the examination process, and the position on costs - simply flow from the circumstances as they have arisen. They do not establish that the liquidator has acted for an improper purpose in obtaining the orders for the examination summonses or that there is to be found in this case a prejudice to Primelife and Sent quite foreign to that contemplated by s 596B, and of such a nature that the orders should be set aside.

248. Next it was submitted that the use of the public examination process was to be seen as part of a wider attempt by the Bufalos to frustrate Primelife in recovering under its counterclaim. The acts of the liquidator said to be acts of frustration were: seeking and obtaining extensions of time in which to consider whether to continue with the company's proceeding; and, failing to identify who was funding the liquidation. There seemed to be a premise in the submission that the Primelife counterclaim is a good claim for whatever amount is sought or recoverable under it, and that the inability to prosecute it until the examinations are concluded is an unfairness on Primelife. Then, again, the matters concerning funding are referred to, and it is submitted that the solicitor Warren is justified in being concerned that Tony Bufalo, or interests associated with him, is funding the liquidator in relation to the public examination and that this is part of a course of conduct designed by the Bufalos to frustrate the recovery of monies claimed in the counterclaim by Primelife.

251. All told, the submission is something of a mish mash. In so far as it relies on facts, it refers to some matters preceding the appointment of Andrews as administrator and then liquidator. It then relies on acts of the liquidator in seeking time - granted by the Listing Master - to consider his position. These matters were considered by the Listing Master who duly, and correctly in my view, gave the liquidator that time. It was not reasonably open to the Listing Master to have taken any other course. In so far as the submission refers to funding matters, these have been referred to earlier in this judgment and I do not repeat the earlier discussions. What they lead to here is the apparent concern of Warren as solicitor for Primelife and Sent and the other examinees. He may have a concern, but what is established?

254. It is the fact that, at the moment, Primelife is unable to prosecute its counterclaim. That may cause some frustration but how is that relevant to the present application? In my view it does not establish, let alone give any indication, that the liquidator's purpose in obtaining the order for examination summonses was improper. None of the matters, whether considered alone or together, establish that the liquidator obtained those orders for the purpose of frustrating Primelife under the counterclaim. Nor in my view is there any evidence to establish any such intention in the Bufalos. Even if the Bufalos were providing funding now, or had done so in the past, it does not follow that it was provided for the purpose of frustrating recovery under the counterclaim. The submission is quite speculative in this respect.

257. Then it was submitted that the examination summonses were unfair. This was a convoluted submission. It commenced by asserting that the liquidator's stated purpose of gathering information to establish whether or not to prosecute proceeding 6668 of 1999 was not his true purpose. It was further asserted that his true purpose was impermissible and that he had been influenced by the persons ultimately funding the liquidation. It was said that if all the liquidator had wanted was information he could have taken up offers of assistance from the other parties. The suggestion seems to be that if the liquidator had gone to the enemy in pending litigation he would have been given such information as he may have required and as he considered sufficient. His decision to examine opposing parties was said to be disproportionate and excessive to his claimed legitimate purpose. I do not agree. From what I have gathered on a perusal of the file in proceeding 6668 of 1999 and on hearing the present application, the disputation in this litigation is heavy and not for the faint hearted. In the circumstances of this litigation, it was open to the liquidator to take the view that the most expeditious way, and the way most likely to provide him with reliable information concerning the examinable affairs of the company, including the pending litigation, was to proceed by way of public examinations. In taking that view he acted on advice.

260. I reject the submission that the liquidator's claimed purpose was not his true purpose. I also reject as totally unsubstantiated the submission that in expressing his purpose the liquidator was influenced - meaning, I think, to act unfairly - by persons ultimately funding the liquidation. In any event, there is a serious question of whether an order for examination summonses can be set aside on a ground of unfairness. Counsel relied on the decision of the Full Court of the Supreme Court of Western Australia in Douglas-Brown (The official liquidator of Woomera Holdings Pty Ltd) (rec and mgr aptd) v Furzer,[22] where Malcolm CJ stated, in a judgment with which Ipp and Anderson JJ agreed, that an order for examination may be set aside or varied if the order is oppressive or unfair,[23] relying on the decision of Nicholson J in Re Rothwells Limited (No. 2).[24] Only a few months later Hayne J, in the Supreme Court of Victoria, in New Zealand Steel (Australia) Pty Ltd v Burton[25] said that fairness was not a ground of attack. As Hayne J stated, the question was whether the power was being used for a purpose foreign to that for which it was given. If it was, there was an abuse of process for that reason. If it was not, no question of fairness arises as the legislature has permitted the step to be taken.[26] I note that his Honour did not refer to Douglas-Brown or Rothwells and assume that he was not referred to those cases. Santow J discussed the matter of fairness in Vagrand Pty Ltd (in liq) v Permanent Trustee Australia Limited.[27] While I prefer the view of Hayne J on the matter, in the present circumstances it is not necessary to take that aspect of the discussion further. Neither counsel did so in their submissions, both being content merely to mention the point. Even if it is assumed that there is a ground of fairness or unfairness which might be a basis for attacking the orders for the issue of the examination summonses, the submission fails to be established on the facts.

263. The next submission is that the examination summonses are an abuse of process as the liquidator either already has, or with proper steps could have, sufficient information to decide whether to continue with the company's claim in proceeding 6668 of 1999. This submission relies on the offers by other parties including Primelife and Sent to provide information, including by discovery and interrogatories, which the liquidator did not take up. It was further submitted that it was in any event premature to examine Sent, Porter and De Luca as the liquidator "does not know at this stage whether that will be necessary at all". I am not satisfied, in terms of the submission, that the liquidator now has, or could have had, sufficient information if he took what are stated to be proper steps and enquiries. I am not in a position to second guess the liquidator in his assessment in that respect. There is no reason to suppose that his decision that he required the benefit of public examinations was not made appropriately on due and proper considerations. He has engaged responsible lawyers and has sworn to steps taken to obtain information and to advice given to have persons examined and to his acceptance of that advice. In the circumstances, regarding the matter overall, his decision to proceed in that way is understandable. He has come to a liquidation at a time when the company is involved in bitterly contested, expensive, and possibly wasteful, litigation. The alternatives are to commit himself on the basis of such information as may be provided by opponents of the company, and the Bufalos, or obtain information on examination under oath under the procedures specially enacted by the Parliament for the benefit of a person such as a liquidator. His judgment was to move in the latter direction and, in that respect, his decision is understandable and, without more, hardly to be second guessed by the Court.

266. Then it was submitted that the examination process was an attempt to obtain a forensic advantage not available from ordinary pre-trial procedures. Again, the submission relies on the offer of Primelife and Sent of discovery and interrogatories in the existing proceeding. It also relies on an order for specific discovery made in the proceeding. As the liquidator could obtain discovery and interrogate in the existing proceeding it would be an abuse of process to conduct an examination for the same purposes. A fundamental flaw in this submission is that the liquidator is not a party to the proceeding 6668 of 1999. Indeed, a purpose of the examination is to better inform him on matters relevant to the question whether to continue with the company's proceeding. The fact that in the meantime an offer has been made to provide information does not establish that the examination summonses were obtained for an impermissible forensic advantage. Moreover, it is a fact recognised by the cases that the public examination process does provide a liquidator with a forensic advantage. Hence the question is whether, in the circumstances, the advantage, assuming there be one, is improper.

269. In addition, it was submitted that the examination of Sent would be a dress rehearsal of his cross-examination at the trial of proceeding 6668 of 1999. He is a key witness, being the person with whom Tony Bufalo made the alleged oral agreements. Hence his credit is important. It is submitted that the examination will seek to destroy his credit in advance of the trial. The other examinees, Porter and De Luca, were referred to as persons who are "likely" to be witnesses at the trial. It was said that it was improper to examine them. It will be recalled that none of the examinees swore an affidavit in support of the present application.

272. Having considered these submissions, individually and as a whole, I am of the view that the applicant examinees have not established an arguable case that their summonses were obtained for an improper purpose or that for any of the other reasons advanced the examinations constitute an abuse of process. The liquidator has made his position clear as to why he has sought examinations in affidavits in proceeding 6668 of 1999. I am satisfied that he does not seek an examination solely (or predominantly) for the purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures or for the purpose of conducting a dress rehearsal of the cross-examination of persons who will, or are likely, to give evidence at the trial, or to destroy the credit of witnesses, or for any purpose otherwise improper. Further, the interest of the liquidator in conducting the examinations is wider than matters concerning the litigation. Matters concerning the litigation are but one part of the examinable affairs of the company with which he is concerned. In so far as the litigation is concerned, I conclude that the liquidator seeks the examinations for reasons akin to those found by McLelland J in Hong Kong Bank. Those reasons are not for the purpose of providing the Bufalos with an advantage, but for the purpose of aiding the liquidator in the proper performance of his duties in the interests of the creditors and shareholders of the company.

275. In reaching these conclusions I have, as invited by Counsel, read the liquidator's affidavits in support of the order for examination summonses. I do not disclose the contents of the affidavits. They confirm what is otherwise indicated by the liquidator. Namely, that he requires information to assist him in evaluating the company's claim and in determining whether to continue with it in its present or amended form, and in other respects concerning the examinable affairs of the company. I find no evidence of a purpose or intention to use the occasion of the examinations to obtain an unfair advantage in the litigation.

278. Moreover, there is no reason to suppose that in their actual conduct the examinations will not be confined within acceptable limits.[28] They will, after all, be conducted before a Master who has a discretion as to the questions which may be put to an examinee.[29] Further, an examinee is entitled to be represented by a legal practitioner, and the Master has a discretion to allow that practitioner to put questions to the examinee for the purpose of enabling the examinee to explain or qualify any answers or evidence given in the course of the examination.[30]

282. The applicant examinees have failed to establish an arguable case for the setting aside of the order for the issue of the examination summonses. It follows that all relief under the examinees' interlocutory process should be refused. That leaves the matter of the subpoena. This falls to the ground with the interlocutory process which the subpoena went to support. There being no arguable case, even on the assumption of a funding arrangement with the Bufalos or another person, there is no point in the subpoena.

[2] Bufalo Corporation Pty Ltd (receiver and manager appointed) (in liquidation) v Leone [2001] VSC 505; (2002) 40 ACSR 327.

[3] Defined in s 9 of the Corporations Act.

[4] Re Courtas Ltd (1993) 19 ACSR 591 where these were referred to as the prevailing right or interest in an examination. See also the reference to the public interest in Sherlock v Permanent Trustee Australia Ltd (1996) 22 ACSR 16, 18.

[5] Re Excel Finance Corporation Limited; Worthley v England (1994) 52 FCR 69, 93-94; Simionato v Macks (1996) 19 ACSR 34, 63.

[6] See, for instance, re Excel at 93-94.

[9] (1994) 13 ACSR 610, 612.

[10] (1997) 25 ACSR 394.

[11] Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486, 497 per Mason J.

[12] Per Cohen J in Re Spedley Securities Ltd (in liq); Spedley Securities Ltd (in liq) v Bank of New Zealand (1990) 3 ACSR 366; 372.

[14] See, for instance, Re Spedley; Hong Kong Bank of Australia v Murphy (1992) 28 NSWLR 512; Re Southern Equities Corporations Ltd (in liq); Bond v England (1997) 25 ACSR 394.

[17] (1969) 91 WN (NSW) 537.

[20] Per Gleeson CJ in Hong Kong Bank at 519.

[21] Re Laurie Cottier Productions Pty Ltd (in liq) (1992) 9 ACSR 513

[22] (1994) 13 ACSR 184.

[24] (1989) 15 ACLR 168.

[25] (1994) 13 ACSR 610.

[29] Mortimer v Brown [1970] HCA 4; (1968) 122 CLR 493.