HRNG ADELAIDE, 13 and 22 March 1993 #DATE 16:4:1993 Counsel for the applicant: Mr A Meagher Solicitors for the applicant: Finlaysons Counsel for the defendant: Mr T A Gray QC with Mr S J Lipman Solicitors for the defendant: Fisher Jeffries

ORDER The orders made by the Master on 20th January 1993 relating to the Proper Officer of the applicant set aside.

JUDGE1 MULLIGHAN J This is an application by KPMG Peat Marwick, a firm of chartered accountants, ("the applicant"), for an order setting aside three orders made by a Master on 20th January 1993 pursuant to s.541 of the Companies (South Australia) Code that persons examined before the court in respect of the affairs of the defendant and produce various documents, specified in the orders, to the court at the time of those examinations. One of the orders referred to James Lutz, a member of the firm in Perth and the other two orders referred to the "Proper Officer" of the applicant in Sydney and in Perth. The application is brought pursuant to the order which also provides that any person interested be at liberty to apply prior to the time of the examinations to vary or discharge the orders and was referred to a Judge by the Master. 2. The liquidator of the defendant has obtained orders pursuant to s.541 over a period of time for the examination of various persons who could provide information as to the winding up of the defendant and for the production by them of numerous documents. The defendant instituted proceedings in this Court against the principals of another firm of chartered accountants claiming damages for breach of contract and negligence. I shall refer to those proceedings as "the Nelson Wheeler action". The parties to the Nelson Wheeler action are in the course of pre-trial procedures, including extensive discovery which they hope to complete in time for the action to proceed to trial later this year. The liquidator of the defendant and its legal advisers apprehend that members of the applicant in either, or both, of Sydney and Perth have in their custody, possession or power, documents which are relevant to issues in the Nelson Wheeler action or at least relevant for the purpose of discovery. The winding up of the defendant is continuing and is a task of such magnitude that it is likely to continue for some years. The liquidator alleges that the documents mentioned in the orders and the examination of Mr. Lutz and appropriate members of the applicant in those two cities who were involved in the audit of various companies are necessary in broader aspects of the winding up of the defendant and not just for the purpose of the Nelson Wheeler action. Those various companies include those comprising the Western United Group of companies and other related companies related to that group or the defendant. It is unnecessary to mention all of the companies. They are set out in the orders of the Master and I accept that the allegation of the liquidator is sound. 3. The first contention of the applicant is that an order pursuant to s.541 cannot be directed to the proper officer of the applicant. It must be directed to a particular person. The relevant provisions of the section are as follows:- "s.541(1) In this section, a reference, in relation to a prescribed person, shall be construed as a reference to an official manager, liquidator or provisional liquidator of the corporation or to any other person authorized by the Commission to make applications under this section or to make an application under this section in relation to that corporation. (2) Where it appears to the Commission or to a prescribed person - (a) a person who has taken part or been concerned in the promotion, formation, management, administration or winding up of, or has otherwise taken part or been concerned in affairs of, a corporation has been, or may have been, guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to that corporation; or (b) a person may be capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to affairs of, a corporation, the Commission or prescribed person may apply to the Court for an order under this section in relation to the person. (3) Where an application is made under sub- section (2) in relation to a person, the Court may, if it thinks fit, order that the person attend before the Court on a day and at a time to be fixed by the Court to be examined on oath or affirmation on any matters relating to the promotion, formation, management, administration or winding up of, or otherwise relating to affairs of, the corporation concerned. ....

(9) A person attending before the Court for examination pursuant to an order made under sub-section (3), if directed by the Court to produce any books in his possession or under his control relevant to the matters on which he is to be, or is being, examined, shall not refuse or fail to comply with the direction." 4. Here, the liquidator contends that he does not know which partner or employee of the applicant in which city has the documents which are sought or the information to be given at the proposed examinations except that Mr. Lutz has some information and perhaps some documents. Nevertheless the provisions of s.541 are clear. The order that a person attend for examination may only be made where the requirements of s.541(2) exist, in this case where it appears to the liquidator that a person may be capable of giving relevant information. That person may be directed to produce documents: ss.(9). There is no basis for an order under the section directing a person merely to produce documents. 5. I do not think there can be any doubt that only natural persons can be the subject of orders and directions under s.541. Stephen J took that view in Smorgon v. Australia and New Zealand Banking Group Ltd. and Ors. [1976] HCA 53; (1976) 134 CLR 475 in relation to the powers of the Commissioner of Taxation pursuant to s.264(1) of the Income Tax Assessment Act 1936 (Cth.) to compel a person to furnish him with information, a provision not dissimilar in operation from s.541: see pp 481-483. In Re Rothwells Ltd. (No.2) (1989) 7 ACLC 576 Nicholson J, in the context of s.541, rejected the notion that the "proper officer" of a company could be the subject of an order under the section, and applied the decision and reasoning of Stephen J in Smorgon (supra): see p 593, as did McLelland J in Re BPTC Ltd. (In Liq.) (No.2) (1992) 10 ACLC 1,431 at p 1435. McLelland J did acknowledge that where an order may be, and is, made against a corporation requiring it to produce documents, it is "permissible and common practice to require the corporation 'by its proper officer' to produce the documents ...": p.1,435. However, s.541 does not empower the court to make an order against a corporation. A contrary view was taken by Cohen J in M and H Plumbing v. DHD Constructions (1989) 7 ACLC 1266. There, orders were made pursuant to s.541 apparently directed to the Proper Officer of various corporations. Cohen J accepted that there is an established practice of directing a sub-poena duces tecum to the Proper Officer of a company and referred to Southern Pacific Hotel Services Inc. v. Southern Pacific Hotel Corporation Ltd. (1984) 1 NSWLR 710 per Clarke J and Penn-Texas Corporation v. Murat Asphalt (1964) 2 QB 643 per Denning LJ at p 663 and Rochfort v. Trades Practices Commission [1982] HCA 66; (1982) 153 CLR 134. He went on to say, at p 1,270:- "It seems to me to make any sense of the section, it is necessary that the Proper Officer produce the documents and therefore that he is the person who should be required to be examined for that purpose." 6. I agree with McLelland J in Re BPTC Ltd. (In Liq.) (No.2) supra, at pp 1435-1436, that the view of Cohen J is not correct. S.541 provides for the examination of a natural person who, in the present context, it appears to the liquidator of the defendant, may be capable of giving relevant information. That person must be identified. The identification may be by name or by some description, e.g. secretary, chairman, general manager, which is capable of identifying a particular natural person. Proper Officer is not so capable. The analogy of the so-called practice with respect to sub-poena duces tecum directed to "a corporation" is not appropriate to s.541. 7. Furthermore, there is no basis for concluding that there is a Proper Officer of a firm of accountants who practice in partnership and not as members of a corporation. 8. The two orders referring to the Proper Officer in Perth and Sydney of the applicant must be set aside as they should not have been made. A consequence of this decision may be that the liquidator will have to obtain orders for the examination of all of the partners of the applicant and the staff of the firm and proceed to examine them one by one until the devised information is obtained. He can hardly be criticized if he takes that course and the principals of the applicant cannot be heard to complain as it is a simple task for them to disclose voluntarily to the liquidator, the identity of the persons who possess the required information and documents. 9. The applicant also contended that the order relating to Mr. Lutz should be set aside for various reasons. The first of them is that it has not been established that it has appeared to the liquidator that Mr. Lutz is a person capable of giving relevant information. The liquidator, who is the prescribed person pursuant to s.541(2), did not place any evidence before the Master as to his belief. An affirmation of his solicitor was filed in which the solicitor deposed to his belief. This is a technical objection but one which the applicant is entitled to take. This issue was resolved by giving the liquidator leave to file an affidavit setting out his own belief and the basis for it. 10. The next ground contended by the applicant for setting aside the order is that it is not proposed to examine Mr. Lutz but only to obtain production of documents and consequently there was no basis for making an order that the various documents be produced. I accept the submission that under s.541(9) an order for the production of documents can only be directed to a person who has been ordered, pursuant to s.541(3), to attend court for examination. However, there is no reason to suppose that Mr. Lutz is not required to be examined. The order provides that he be examined and that he be summoned for that purpose. Whilst the affirmation of the solicitor which was before the Master gives the impression that the liquidator was only seeking documents, a subsequent affirmation, and the recent affidavit of the liquidator, make it plain that the liquidator does seek information from Mr. Lutz as well as the documents to assist him in the discharge of his duties in the winding up of the defendant. There is no substance in this ground of objection. 11. Next, the applicant contended that the documents specified in the order are not limited in any way to those relevant to matters upon which Mr. Lutz might be examined and further that the order is oppressive because it requires him to bring to court any documents in his possession, custody or power which relate to the affairs of the defendant, without the affairs being specified. There are various other grounds of objection along similar lines. It is, for instance, suggested that certain specified documents are not capable of relating to the affairs of the defendant because they relate to companies which were not part of the defendant at relevant times or they are documents generated by the applicant during the course of the professional work which it undertook. There is no reason to suppose that the documents ordered to be produced are not relevant to the matters upon which Mr. Lutz is to be examined. The liquidator is concerned to ascertain and understand the circumstances of the valuation of Western United Limited by a member of members of the applicant prior to the takeover of that company by Kio Ora Gold corporation NL. The subsequent entity was the defendant. Whilst the liquidator concedes that he wants to use these documents in the Nelson Wheeler action but, as I have said, that is not his only purpose. There is no reason to suppose that any of the docments sought may not be relevant to the subject matter of the examination of Mr. Lutz. Those documents relating to companies before the takeover may provide a better understanding of matters relevant to the determination of all of the assets and liabilities and the defendant relevant in the winding up process. The documents generated by members and staff of the applicant may also be necessary for those purposes. Both of these categories of documents do relate to the officers of the defendant in the relevant sense and there is no reason to exclude them from the reach of the order. Furthermore, the desxcription of the documents in the order does not suggest that any of them cannot relate to the affairs of the defendant when seen in the context of the takeover. There is no reason to conclude that the only purpose for seeking the documents is for use in the Nelson Wheeler action and not for a s.541 examination as the applicant contends. 12. The liquidator frankly concedes that the documents are required for the Nelson Wheeler action to prove features of the defendant's case on damages, but that is only one purpose for requiring the documents. The liquidator is involved in a very complex winding up of the defendant and there is no reason to reject his assurance that he also requires the documents for the wider purpose of the winding up which I have mentioned. The applicant contends that the defendant should have sought third party discovery from its principals pursuant to the rules of court whereupon the applicant could have exercized a judgment as to what documents should be discovered and that by pursuing the procedure under s.541, the liquidator was attempting to circumvent the rights of the applicant in the discovery process. It is not necessary to consider the reach of the discovery process under the rules of court and as to whether the applicant would be obliged to discover all of the documents referred to in the orders. The liquidator is entitled to seek appropriate orders pursuant to s.541 even if it has instituted civil proceedings against the person he seeks to examine: Re Hugh J Roberts Pty. Ltd. (In Liq.) (1969) 91 WN 537 per Street J at p 541, Hong Kong Bank of Australia v. Murphy (1992) 8 ACSR 736 per Gleeson CJ at p 743 and Re Equiticorp Finance Ltd.; ex parte Black (1992) 10 ACLC 382. It follows that he may apply for an order where civil proceedings have been institued against someone else. As Street J pointed out in Re Hugh J Roberts Pty. Ltd. (In Liq.) (supra), at pp 541-542, vexation or oppression will not be tolerated and a liquidator must not abuse the process (under s.541). 13. Now that the position of the liquidator has been fully explained by the affidavits filed subsequent to the orders, there can be no suggestion of abuse of process even though he will obtain the benefit of the documents for use in the Nelson Wheeler action. 14. I think the issue of vexation or oppression may be readily rejected. In addition to the alleged oppression which I have mentioned, it is claimed that it is oppressive for a person such as Mr. Lutz to be placed in the position of having to determine what documents and other writings are "in any way relating to the affairs" of the defendant. I expect there may be cases where it would be oppressive to require a person to make such a judgment just as there are, no doubt, many cases where it would be a simple matter to determine which documents had to be produced. Each case must be determined upon its own circumstances. It would appear from the evidence that there is no difficulty here. There has been correspondence between the respective solicitors for the applicant and the liquidator. During the course of that correspondence, the solicitor for the applicant made it clear that there was no objection to the liquidator inspecting the documents provided that he undertook not to commence proceedings against the applicant in respect of, or in any way connected with, or arising out of the takeover of Western United Limited by the defendant or arising out of the 1988 and 1987 audits of any relevant company. The liquidator has refused to give such undertakings. Whatever else may be said about this correspondence it may be accepted that the applicant was willing to produce the documents provided that the apparent concern that the partners may be sued was alleviated. No suggestion of oppression was raised and there is no evidence to suggest that it would be vexatious or oppressive to require the documents to be produced. The possibility that production of the documents may result in legal proceedings being instituted against the members or staff of the applicant is no reason to deny the liquidator the order for the examination of appropriate persons or the production of documents. 15. Mr. Meagher also argued that those documents which related to the audits of Western United Limited in 1986 and 1987 could not be the subject of the order because they were conducted at a time when that company was not a subsidiary of the defendant and therefore its officers could not be the subject of an examination under s.541(3) and those documents could not be the subject of an order under s.541(9). Western United Limited, after the takeover, did become part of the defendant and therefore its affairs became those of the defendant. The winding up of the defendant necessarily involves an investigation of all of the assets of the defendant which includes those assets which come within the defendant after the takeover. S.541(3) provides for the examination of a person or any matters relating (inter alia) to the winding up of or otherwise relating to the affairs of a corporation. In the present context it is not difficult to see how the subject audits are matters falling within either category. 16. I have not considered it necessary to consider the true point taken by the liquidator as it was not pressed during argument. 17. The orders made by the Master on 20th January 1993 relating to the Proper Officer of the applicant must be set aside. The application to set aside the order relating to Mr. Lutz is refused. At this stage I see no reason to vary that order so as to give directions as to how the examination is to be conducted or as to the production of the documents. If directions are required they may be given by the Master.