Commissioner for Fair Trading v Pobjie Agencies Pty Ltd & Ors

JURISDICTION : Equity Division Corporations List

DECISION : 1. Direct pursuant to s 596F(1)(a) of the Corporations Act that the matters to be inquired into in the examination of the applicants not include the dealings of Vero Insurance Limited with any builder other than: (a) Pobjie Agencies Pty Limited (In Liq) ("Pobjie"); or (b) any builder having dealings with Pobjie; 2. order that the interlocutory process dated 26 October 2006 be otherwise dismissed; 3. order that the applicants pay the respondent's costs of the interlocutory process.

CATCHWORDS : CORPORATIONS - Examinations relating to insolvency - Application to set aside summonses for examination - Whether summonses sought for dominant improper purpose - Whether summons related to "examinable affairs" of a corporation - Consideration of ss 9, 53 and 596F(1)(a) of the Corporations Act - Whether liquidator had full knowledge of relevant matters - Liquidator's entitlement to investigate existence of possible causes of action - Whether liquidator's affidavit misleading or failed to disclose material matters - Discretion to set aside examination summons - Application to set aside examination summons refused. - COSTS - Application for security for costs against liquidator refused - Applicants liable for costs of application.

Corporations Act 2001 (Cth) LEGISLATION CITED : Home Building Act 1989 (NSW) Fair Trading Act 1987 (NSW)

Commissioner for Fair Trading v Pobjie Agencies Pty Ltd & Ors [2005] NSWSC 13 Meteyard v Love (2005) 65 NSWLR 36 CASES CITED : Carter v Gartner (2003) 130 FCR 99 Re Southern Equities Corporation Ltd (in liq); Bond & Anor v England (1997) 25 ACSR 394 Re Coretel Pty Ltd; Linker v Nilant (2003) 48 ACSR 178 In the Matter of Mendarma Pty Ltd; King & Anor v McDonald [2006] NSWSC 1306

PARTIES : Murray Roderick Godfrey as Liquidator of Pobjie Agencies Pty Ltd (in liquidation) ACN 000 859 405

COUNSEL : Applicant: M S Jacobs QC, P J Bambagiotti Respondent/Liquidator: M R Aldridge SC

SOLICITORS : Applicant: Mills Oakley Lawyers Respondent/Liquidator: Access Business Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

4816/06 Murray Roderick Godfrey as Liquidator of Pobjie Agencies Pty Ltd (in liquidation) ACN 000 859 405; Application of Vero Insurance Ltd ACN 005 297 807 & 2 Ors

JUDGMENT 1 HIS HONOUR: This is an application by Vero Insurance Ltd ("Vero") and two of its employees, Messrs Paul Jameson and John Hague, to set aside summonses for examination and orders for production of documents issued by the Court on the application of Mr Murray Godfrey as liquidator of Pobjie Agencies Pty Ltd (in liquidation) ("Pobjie"). The applicants sought in the alternative that the liquidator provide security for costs which would be incurred by the individual applicants and which might be awarded to them under s 597B of the Corporations Act 2001 (Cth). 2 During the course of argument, the question of production of documents was resolved. The liquidator made it clear that he did not press for the production of any documents which had already been provided. Vero said that all documents required to be produced had already been produced, save for one category. There was objection to one category on the ground of its width. However, the scope of documents to be produced was resolved during the course of argument and the required document was produced. 3 The application for the issue of summonses for examination and orders for production of documents was made pursuant to s 596B of the Corporations Act. 4 The applicants submitted that the examination summonses should be set aside on the following grounds (which I have attempted to distil to their essentials):

(a) that the application by the liquidator under s 596B of the Corporations Act for the issue of summonses to the applicants was an abuse of process because the liquidator was activated by malice arising from his previous personal dealings with Vero, or, intended to use the examination to assist him in a personal claim he had against another builder for whom Vero had provided home owners' warranty insurance;

(b) the liquidator was proposing to examine in relation to extraneous matters which did not form part of the "examinable affairs" of Pobjie;

(c) the issue of the summons was beyond power because, as a result of voluntary disclosures made by Vero to the liquidator, the liquidator already had full knowledge of any relevant matter;

(d) the examinations were intended as a dress rehearsal for litigation which the liquidator had already decided to embark upon against Vero;

(e) the liquidator appreciated, or should have appreciated, that Pobjie had no reasonable cause of action against Vero and the examinations could not result in a benefit to Pobjie; and

(f) the affidavit filed by the liquidator in support of the application under s 596B for the issue of examination summonses was misleading and contained serious non-disclosures of material matters. Background 5 Mr Godfrey was appointed as voluntary administrator of Pobjie on 27 August 2004. He subsequently became liquidator when the second meeting of creditors resolved that the company be wound up. Mr Godfrey deposed that Pobjie carried on a business relating to the supply and installation of home improvement products such as cladding, carports, and extensions. However, from at least June 2003, it carried out more substantial building work on residential premises. 6 Section 92 of the Home Building Act 1989 (NSW) provides that a person must not do residential building work under a contract, unless a contract of insurance that complies with the Act was in force in relation to that work in the name of the person who contracted to do the work, and a certificate of insurance evidencing the contract of insurance is provided to the other party to the contract (s 92(1)). 7 Section 92 does not apply if the contract price does not exceed $5,000 or, if the contract price is not known, the reasonable market cost of the labour and materials involved does not exceed $5,000. 8 Homeowners' warranty insurance is not insurance of the quality of the building work. In substance, it is insurance against the builder disappearing or becoming insolvent (Home Building Act, s 99). 9 The effect of subs 92(2) of the Home Building Act is that, except in limited circumstances, a building contractor carrying out such work is not entitled to receive payment under a contract for residential building work unless a contract of insurance that complies with the Act is in force in relation to that work, and a certificate of insurance evidencing that contract has been provided to the other party. The effect of subs 94(1) is that, except in limited circumstances, if a contract of insurance required by s 92 is not in force, the contractor is not entitled to recover money in respect of such residential building work for which no contract of insurance is in place, including by way of a quantum meruit. 10 The limited exception is that, if a Court or Tribunal considers it just and equitable, a contractor, despite the absence of the required contract of insurance, may be entitled to recover money in respect of such work on a quantum meruit basis (s 94(1A)). 11 Pobjie had many customers for whom building work was carried out, notwithstanding that homeowners' warranty insurance was not in place. It can be inferred that the liquidator has experienced, or will experience difficulty in recovering remuneration for work carried out. 12 Pobjie had to obtain homeowners' warranty insurance under s 92 of the Home Building Act for many of the works it carried out. Prior to 2001, it obtained that insurance through a subsidiary of HIH Insurance Ltd. Following the liquidation of HIH, it obtained homeowners' warranty insurance through "Dexta" and then Royal & Sun Alliance. Mr Godfrey deposed that Royal & Sun Alliance was acquired by Vero in 2003. It appears that in fact the company changed its name to Vero in 2003, but nothing turns on this difference (although it is one of the grounds upon which it is claimed that the supporting affidavit was misleading). 13 On 14 May 2003, Pobjie completed an application form which Royal & Sun Alliance described as being a form which would be used to help it decide whether or not to provide Pobjie "with eligibility for Residential Construction Warranty Insurance". It provided a breakdown of Pobjie's annual turnover and requested an "Annual Limit" of $4,000,000. 14 On 14 June 2003, Royal & Sun Alliance issued a "Certificate of Eligibility" to Pobjie. The certificate provided that one of the "limitations on eligibility" was that the maximum total value of all residential building works in any twelve-month period be $500,000. It also stated maximum job limits for any particular residential project of $70,000 for alterations and additions, and $50,000 for improvements. The certificate stated that any application for insurance that was outside the limitations of eligibility would not be accepted. The certificate also stated that it did not itself create a contract of insurance, nor did it give any right to insurance in relation to any particular building work. A separate application for insurance was to be made in respect of each residential/domestic building work contract. Such work would only become insured when the application for a particular project was accepted. 15 It appears that there was a very limited market for homeowners' warranty insurance. In 2003 and 2004, Pobjie asserted that there were only two insurers who offered such insurance. 16 The certificate of eligibility also stated that if a builder wished to enter into contracts outside the stated limitations on the certificate, Royal & Sun Alliance Construction and Engineering Services should be contacted to request a "Builder Profile Review". Such a review would require the provision of additional financial and technical information. 17 Pobjie soon entered into contracts with a total value exceeding $500,000. In November 2003, a builder profile change was requested. An increase in turnover was sought from $500,000 to $4,000,000. Vero requested the provision of a bank guarantee of $800,000 as security. 18 On 29 January 2004, the turnover limit of $500,000 was increased to $1,000,000. The limits on individual projects remained the same. 19 On 23 March 2004, a further application was submitted by Pobjie's broker to increase the turnover limit from $1,000,000 to $2,500,000. 20 In the meantime, the Office of Fair Trading had given notice to the directors of Pobjie to show cause as to why disciplinary action should not be taken against Pobjie under s 62 of the Home Building Act. The notice listed a large number of alleged breaches of the Home Building Act. There were numerous allegations that Pobjie had carried out building work under a contract for residential building work without providing a certificate of insurance evidencing a contract of insurance required under the Act. 21 In his affidavit in support of the examination summonses, the liquidator deposed that: " By letter dated 14 April 2004, there was an approval of the increase of the certificate limit to $2,500,000, subject to the production of a bank guarantee of $225,000. " 22 He exhibited a facsimile from Paul Donnelly Insurance Brokers of 14 April 2004, which attached a letter from Vero advising that it was prepared to accept the recent Builder Profile Change Access Application subject to conditions outlined in an attached schedule. Vero stated in that letter that upon receipt of evidence that the conditions had been satisfied, it would immediately issue a certificate of eligibility which would enable the builder to apply for residential construction warranty insurance on their individual projects. The conditional approval was said to be valid for a period of ninety days. The condition contained in the schedule was that Vero be provided with an original, unconditional bank guarantee for $225,000 to support the requested annual limit of $2,500,000. 23 In affidavits sworn on the present application, Mr Hague deposed that on 11 May 2004, the eligibility was upgraded to a yearly turnover of $1,500,000 (not $2,500,000), although no upgraded certificate of eligibility was issued. 24 The bank guarantee for $225,000 was provided to Vero on or about 7 July 2004. 25 A facsimile from the insurance brokers to Pobjie of 11 May 2004 advised that Vero would be issuing certificates in relation to seven projects that day. It appears from that letter that there were then thirty-three outstanding applications to Vero for insurance. Pobjie, it seems, had paid to its brokers the premiums which would be payable in respect of all such applications. The evidence suggests that the brokers had forwarded those premiums to Vero, although it was not Vero's usual practice to take premiums in advance of the acceptance of applications. In correspondence to the liquidator, Mr Jameson said that when the moneys were received by Vero, there was no invoice to allocate them against and they were placed into its trust account. Once it was discovered that the moneys were for premiums in respect of certificates which Vero had not agreed to issue, he said that Vero immediately refunded the moneys. This may be a matter for investigation by the liquidator. 26 Mr Jameson deposed that on or about 10 May 2004, (a time, he says, when Vero agreed to increase Pobjie's eligibility to a turnover of $1,500,000), Vero was already exposed to certificates totalling $1,207,757. Mr Jameson deposed that subsequent to that decision, Vero issued three further certificates totalling $114,157 giving "eligibility utilisation" of $1,321,914. 27 Mr Jameson deposed that: " There were a number of matters that happened concerning Pobjie around the time of the receipt of the bank guarantee. … All of the matters referred to raised a serious note of caution concerning Pobjie's viability as a licensed builder to complete new projects. This would have severely impacted upon Vero's risk, together with that of any homeowners. It was then decided by Vero to suspend the issuing of further policies until clarity was obtained as to whether Pobjie would continue as a licensed builder or otherwise. " 28 In his affidavit in support of the application for examination summonses, Mr Godfrey deposed that after the provision of the bank guarantee, Vero decided not to issue any further certificates. He disclosed that Vero had provided reasons for that decision such as winding-up action against the company and the suspension of the company's building license by the Department of Fair Trading. 29 The company's licence was suspended on 6 August 2004. 30 Mr Godfrey also deposed that it appeared to him that Vero had drawn upon the bank guarantee, notwithstanding that it had not issued any further policies of insurance (HOWI certificates) after it received the guarantee. 31 It appears from Mr Jameson's affidavit of 19 October 2006 (para 7) that Vero has received "the proceeds of the bank guarantee" and applied $135,157.34 to recoup payments made or fees incurred in relation to fourteen claims. It does not appear which, if any, of those claims were in respect of policies issued after Vero had agreed to increase the eligibility limit in return for the provision of the bank guarantee, or which relate to earlier policies. In relation to earlier policies, there can be no doubt that by receiving the bank guarantee Vero improved its position, as it then acquired security for its liability to the insureds which it otherwise would not have had. 32 One of the purposes of the examinations is to investigate whether the provision of the bank guarantee is a voidable transaction and whether grounds exist for an application to be made for orders under s 588FF of the Corporations Act in respect of such a transaction. 33 On 13 August 2004, the Commissioner for Fair Trading instituted proceedings against Pobjie and its directors. Those proceedings were heard and determined by Sully J (Commissioner for Fair Trading v Pobjie Agencies Pty Ltd & Ors [2005] NSWSC 13). The Commissioner had only limited success. Although Pobjie was joined as the first defendant and filed an appearance, it did not appear at the hearing or take an active part in it (Commissioner for Fair Trading v Pobjie Agencies Pty Ltd at [5]). 34 Sully J concluded from the evidence before him that seven certificates were issued by Vero after a meeting of 11 May 2004 at which it was agreed to expand the eligibility limit from $1,000,000 to $1,500,000. His Honour said: "167. It is clear from the documentary evidence that prior to 14 April 2004 there were negotiations for an increase to $2,500,000 in the amount of maximum insured work value; and that the insurer approved the proposed increase but required as a condition of it the lodging by the company of a bank guarantee for $225,000. … 169. … the company did in fact provide the bank guarantee of $225,000; but … the insurer would neither issue ongoing Certificates of Insurance because the company's licence had been suspended; nor return the bank guarantee or any part of it. 170. The company's insurance affairs look to have been disorganised, like much else in its business arrangements; … The company was trying to run a high-turnover business. The relevant sector of the insurance industry was itself in disarray for at least part of the material times." 35 His Honour also said that from the available evidence, the following statement was substantially accurate, namely: "w e are governed by the Home Owners Warranty Insurance Company as there are only 2 companies that provide builders with this type of insurance. They have a monopoly over us and we have to abide by their changes and their lengthy delays in supplying us with your Certificate. " 36 Mr Hague (one of the proposed examinees) gave evidence in the proceedings before Sully J and was cross-examined by counsel for the directors. In an affidavit sworn in these proceedings, he said that he could not think of anything more he could add to the evidence which he had already given. Vero's Co-operation With the Liquidator 37 Mr Godfrey (as administrator) issued his first report to creditors on or about 16 September 2004. In it, he set out the advice he had received from Mr Thomas Pobjie as to the history of the company. The advice from Mr Pobjie which he recounted included that: " The company applied to Vero for $4,000,000 of Home Warranty Insurance cover in 2003 and on 15 June 2003 policies started to be issued. Unknown to the directors was that a cap had been placed on the issue of policies by Vero at approximately $500,000. Unaware of this, the company continued to make applications for certificates of cover and paid premiums to the brokers appointed by Vero. Notwithstanding these payments of premiums, promises by representatives of Vero and the provision of a bank guarantee in favour of Vero for $250,000, secured against the home of Mrs Lila Pobjie, only a handful of certificates were issued by Vero since late 2003. As a result of the failure of Vero to issue certificates of insurance in accordance with the approval, the company suffered enormous delays to contract works, has had significant actions commenced against it in the Consumer, Traders & Tenancy Tribunal and has had numerous complaints made to the Office of Fair Trading. As a result of cancelled contracts the company has paid back to customers over $600,000 since 1 July 2003 which represents a direct loss to the company in respect of the costs to secure the customer and commence drawings and planning approvals. " 38 In his first report, Mr Godfrey outlined possible legal action against Vero as follows: " As discussed earlier in the report the director attributes the failure by Vero to issue HOWI certificates as a major reason for the failure of the Company. The failure to provide HOWI certificates to customers prior to commencement of work is also stated by the OFT as a reason for the suspension of the Company's building licence. I have interviewed several of the staff of the Company and confirmed that it was in fact the policy of the Company to complete applications for HOWI insurance and make payment of the premium immediately following expiry of the cooling off period and the contract going unconditional. I have also confirmed with the Company's insurance brokers, Phil Donnelly Insurance Brokers, that these policy applications were received and the monies immediately paid to Vero, through Watkins Taylor Stone as the wholesale brokers appointed by Vero. I have also confirmed that Vero held these monies for a considerable period, without issuing policies or alternatively refusing cover. I have written to the Company's insurance brokers, Donnelly, to obtain copies of all the correspondence, details of meetings, applications for cover and promises by Vero to issue certificates so as to establish whether it was reasonable for the director to rely on the representations of Vero that certificates would in fact be issued. I am, however, very concerned by the actions of Vero. Vero as late as June 2004 sought and received a bank guarantee of $250,000 from the Company and still did not issue certificates. I am aware that other builders have had similar experiences with Vero and intend to investigate further whether the actions of Vero constituted a breach of the Fair Trading Act, the Trade Practices Act or other legislation. Should this be the case the Company may have a case against Vero to claim compensation for the resultant damages caused to it and its customers. " 39 After Vero received the report, Mr Jameson invited Mr Godfrey to attend Vero's offices to read the file. He told Mr Godfrey that the report was completely wrong. In about late September 2004, Mr Godfrey visited Vero's offices and spent some 2-3 hours in reading the file and taking notes. Vero submitted that as a result of its co-operation, it had forwarded all possible information to Mr Godfrey that he could want or need to determine the merits of Mr Pobjie's complaint as outlined by Mr Godfrey in his first report to creditors. Mr Jameson deposed that he would gladly have given Mr Godfrey any further documents he requested and answered his questions. However, a liquidator is not obliged to pursue private investigations and enquiry before embarking on public examinations. On the other hand, the extent of a proposed examinee's voluntary co-operation could be material to a decision whether to make an order for the issue of examination summonses. 40 In a further report to creditors of 15 October 2004, Mr Godfrey reported on his having inspected records provided to him by Vero. He reported that: " I have not been provided with all the records Vero hold in respect of the company. Therefore it still remains open to determine whether the company has any possible action against Vero. This will require further investigation of the records maintained by the company's insurance brokers who have yet to respond to my request to supply records to me. On the basis of the information currently available an action against Vero is unlikely. The information provided to me does however establish that the director was aware of the cover available and could have taken steps to ensure the company operated within the cover available. "

Liquidator's Affidavit in Support of Examination Summonses 41 In his affidavit sworn in support of his application for the issue of examination summonses pursuant to s 596C of the Corporations Act, Mr Godfrey deposed to the following: " 37. In his Summary of Conclusions, Justice Sully, at paragraph [11] commented:- ' … the overall result is, if I may put the point thus, a very mixed bag of success and failure for the Plaintiff (Office of Fair Trading) … ' 38. I have real concerns that the combined actions of the Office of Fair Trading in suspending the licence of the Company, coupled with the refusal by Vero to issue insurance, led to a situation where the Company was effectively forced into administration and, subsequently, liquidation, thereby disadvantaging unsecured creditors. … 47. If Vero had issued the Home Owners Warranty Insurance as requested by the Company on the dates of each application having been made, then the level of claims against the Company under the winding up would be reduced substantially. Vero would be likely be [sic] responsible for payment of customer claims under the HOWI policies. 48. By failing to issue HOWI Policies, I am concerned that Vero may have deliberately avoided a liability to which it would otherwise have been liable. 49. I am also concerned that, by failing to issue Certificates of Home Owners Warranty Insurance after delivery of the Bank Guarantee, Vero may have acted in a manner that was unconscionable and misleading. It appears to have obtained the benefit of the Bank Guarantee without providing the corresponding benefit to the Company. 50. I also have concerns that: (a) Vero was aware, that by failing to issue Certificates of Home Owners Warranty Insurance, it would effectively prevent the Company from trading and would therefore lead to the insolvency of the Company; and, (b) Vero deliberately failed to issue those policies as it would have been liable for approximately $1.1 Million worth of claims under those policies had they been issued and the Company then wound up. 51. I also wish to examine Vero as to the reasons that it accepted and retained the Bank Guarantee, particularly as to whether Vero knew that it would not be issuing any further certificates at that time. 52. If Vero retained the guarantee in order to reduce the amount which it would otherwise have owed to the Company under the insurance policies, I am concerned that there may have been a preferential effect. 53. I wish to examine the conduct of both the Office of Fair Trading and Vero and their relationship with the Company for the period from May 2003 through to October 2004, in order to examine the role that each of those entities may have had in causing the financial demise of the Company. 54. I also wish to examine the examinees to determine the level of cooperation and interaction between the Office of Fair Trading and Vero Insurance. " Mr Godfrey's Claim Against Carsille Pty Ltd 42 In his s 596C affidavit, Mr Godfrey disclosed that he had had personal proceedings against Carsille Pty Ltd (which he described as a company related to Harvey Norman) in the Consumer Trader and Tenancy Tribunal. He deposed that in the course of those proceedings, he became aware that Vero had a practice of issuing homeowners' warranty insurance certificates for building works after the works had been commenced or concluded. He exhibited a table of certificates issued by Vero in respect of building contracts of Carsille Pty Ltd referring to the dates upon which certificates of insurance issued, dates on which the building contracts were entered into, and dates upon which building work to which those contracts related was commenced and completed. He deposed that: " I wish to examine Vero in relation to this practice to determine why Vero appears to have acted outside the terms of the HOWI legislation in respect of Carsille Pty Ltd, whilst refusing to provide certificates for the Company. " 43 Considerable evidence was adduced on this application in relation to Mr Godfrey's claim against Carsille Pty Ltd, and in relation to allegations he made against Vero in those proceedings. The applicants contended that the evidence showed that Mr Godfrey had a personal vendetta against Vero and had made wild accusations against it, such that it should be inferred that the present examination summonses were brought in order to embarrass Vero, or out of malice, or for motives of revenge. 44 In his proceedings against Carsille Pty Ltd, Mr Godfrey complained of incomplete and deficient work. Mr Godfrey also claimed that because there was no homeowners' warranty insurance in place when the building contract was entered into and commenced, Carsille was required to refund the moneys he had paid and was unable to recover amounts which otherwise would be due under the building contracts of about $10,500 (Exhibit A, pp 2, 6-7). In the course of that submission, Mr Godfrey contended that the certificates issued by Vero had been issued fraudulently (page 7, line 20). He repeated that allegation on a later occasion before the Tribunal (Exhibit A, transcript 14/2/06, page 36). 45 In the proceedings before the Tribunal, Mr Godfrey caused a summons to be issued to Vero for the production of documents. The summons required that Vero produce certain documents. Vero responded to that summons with a disingenuous response that it was unable to produce the documents until it had received written confirmation of the person or entity to whom the production of documents related. The response was disingenuous because it was clear from the summons that it called for the production of the insurance file for Carsille Pty Ltd and Mr Godfrey. 46 Mr Godfrey responded by accusing Vero of "taking all steps to impede the investigation of this matter and to pervert the course of justice". He made further sarcastic comments about the ability of Vero's executives to understand English. 47 Vero relied upon these matters (and certain others to which I will refer later in these reasons) in relation to what I have identified as the first ground for challenging the examination summonses. 48 On 14 February 2006, the Consumer Trader & Tenancy Tribunal struck out Mr Godfrey's summons for production of documents to Vero to the extent documents had not already been produced. It ruled that the circumstances in which Carsille obtained homeowners' warranty insurance from Vero were not relevant to Mr Godfrey's proceedings as there was no dispute that Carsille had obtained the necessary insurance, and that certificates evidencing the insurance were in Mr Godfrey's possession. 49 Mr Godfrey's proceedings against Carsille were determined by the Tribunal on 15 March 2006. Mr Godfrey was ordered to pay the balance of moneys owing under the building contracts. Carsille was ordered to undertake certain additional building works. 50 Mr Godfrey has applied for a rehearing before the Tribunal complaining of deficiencies in the building work. The application did not raise any issue concerning Carsille's homeowner warranty insurance. The application for rehearing was refused on 3 July 2006. Mr Godfrey commenced proceedings in this Court on 6 September 2006 to set aside the Tribunal's orders of 15 March 2006. He deposed that the grounds of his appeal had nothing to do with the issue of homeowner warranty insurance. 51 In other words, whilst Mr Godfrey raised the issue of Carsille's homeowner warranty insurance with Vero in the course of the Tribunal proceedings, that ceased to be an issue in the proceedings following the Tribunal's ruling of 14 February 2006. Allegation of Improper Purpose 52 There were various threads to the applicant's submissions that Mr Godfrey's application under s 596B of the Act was brought for an improper purpose. Some of these overlapped with its later submissions. The first submission was that the liquidator was using the examination process for an improper purpose being the advancement of his own proceedings against Carsille in the Consumer Trader & Tenancy Tribunal if he is successful in his appeal to the Supreme Court, or out of malice, or revenge. Counsel for the applicants submitted that: " … Mr Godfrey is on an unfortunate mission. It is inappropriate that Mr Godfrey use the occasion of his position as liquidator of Pobjie to advance this crusade - be it for his personal gain in the Carsille matter (which with the appeal to the Supreme Court might still have life) or some quixotic adventure on behalf of other builders who, in his September 2004 Report he describes as having had 'similar experiences with Vero' ". 53 I do not accept that Mr Godfrey was motivated by any such improper purpose, let alone that that was his dominant purpose. Mr Godfrey set out his purpose in seeking the examination summonses in his affidavit filed pursuant to s 596C of the Act. He swore a further affidavit on the hearing of the application. In that affidavit he deposed that his decision to seek the public examination of employees of Vero was not motivated by his seeking any advantage in his personal proceedings, nor by any desire to personally embarrass any officer of Vero. He was not cross-examined on his affidavits. 54 It does not follow from the fact that Mr Godfrey had an expressed strong feeling in relation to his personal claim against Vero that he is using the present proceeding for an improper purpose. Whilst his accusations against Vero in the course of the proceedings before the Tribunal were excessive, Vero itself was not without fault. Be that as it may, I accept his unchallenged evidence that he was not motivated by considerations of personal advantage, or a wish to embarrass any of Vero's officers. 55 It was also submitted that Mr Jameson did not have first hand knowledge of Vero's provision of certificates of eligibility to Pobjie, or the negotiations for those certificates. It was submitted that as he did not have first hand knowledge of Vero's dealings with Pobjie, it should be inferred that the reason the liquidator requested a summons to examine him was because the liquidator was still in pursuit of his own vendetta against Vero, or his own claim against Vero. 56 I do not accept this argument. Mr Jameson put himself forward as the person to answer the liquidator's inquiries. It was he who told the liquidator that the facts stated in the liquidator's first report to creditors were wrong. It was he who caused a list to be extracted from Vero's files in relation to the application for homeowners' warranty insurance relating to work done by Pobjie. According to his own affidavit, it was he who explained to Mr Godfrey what he says are the true facts in relation to Vero's dealings with Pobjie, and invited the liquidator to review the file. Nor is the liquidator bound to accept the applicants' assertions as to Mr Jameson's lack of first hand involvement. The submission that the liquidator is motivated by an improper purpose, because he applied for an examination summons to be issued to Mr Jameson, is far-fetched.

Whether the Proposed Examination Would Go Beyond the "Examinable Affairs" of Pobjie 57 The definition of "examinable affairs" in ss 9 and 53 of the Corporations Act is very wide. It includes the business, trading, transactions and dealings of the company. The applicants complain that the liquidator sought to examine them in relation to matters which had no connection with the company's examinable affairs, namely, whether Vero had a practice of not issuing certificates of homeowners' warranty insurance until after building works had been commenced or even concluded. The liquidator wished to examine them in relation to the issue of building certificates to Carsille. 58 In his second affidavit, Mr Godfrey raised the possibility that Vero might justify not issuing certificates of homeowners' warranty insurance to clients of Pobjie because building work had already commenced. If such an explanation were given, Mr Godfrey would seek to test the veracity of the explanation by investigating Vero's practices as to the time at which it issued certificates for customers of other builders. Nothing in the extensive material put on by Vero in relation to its reasons for refusing to issue further certificates of homeowners' warranty insurance suggests that it acted for any such reason. The reasons it says it did not issue further certificates of homeowners' warranty insurance up to what it said were the limits of eligibility ($1,500,000) were because an application for the winding-up of Pobjie had been filed, and because of action taken or threatened against Pobjie by the Office of Fair Trading. 59 Another basis upon which the liquidator contended that such an investigation into Vero's practices was justified was that if Vero had a practice of issuing homeowners' warranty insurance certificates after the commencement of work in relation to other builders, such that it was a common practice in the industry, that may have encouraged officers of Pobjie to commence work before obtaining homeowners' warranty insurance certificates in the expectation that such certificates would be granted later. If that were the case, Mr Godfrey deposed that he wished to determine whether creditors might have any recourse as a result of the practice. 60 It does not follow however that the examination of Vero's dealings with other builders is part of the examinable affairs of Pobjie. If officers of Pobjie were to depose that they caused the company to commence building work without certificates of homeowners' warranty insurance in place, not because of their own dealings with Vero (which would clearly be part of Pobjie's examinable affairs), but because of what they observed in other parts of the industry, that would not be sufficient to make dealings of Vero with third parties, which had no connection with Pobjie, part of Pobjie's examinable affairs. 61 The Court may, pursuant to s 596F(1)(a), give directions as to the matters to be inquired into at an examination. It is appropriate to give a direction that the matters to be inquired into at an examination not include Vero's dealings with Carsille or with other builders. 62 It does not follow that because the liquidator proposed extending the examination into such areas, that the examination was brought with a dominant improper purpose. The other matters into which the liquidator proposes to inquire are proper matters for investigation.

Does the Liquidator Have Full Knowledge of all Relevant Matters? 63 In Meteyard v Love (2005) 65 NSWLR 36, Basten JA, with whom Beazley JA agreed, said (at [39]): " [39] A consideration of the terms of s 596B(1)(b)(ii) suggests that the scope of the power is delimited by four considerations, namely that: (a) the proposed examinee may have "information" to give; (b) the information must be relevant in the sense that it is about "examinable affairs of the corporation"; (c) because the purpose of the section is to allow the receivers and managers to be informed of facts about the affairs of the company, the information should be information not within their knowledge, although the extent of knowledge will not be precisely definable, and (d) there must be a factual basis for the Court to form a reasonable state of satisfaction that a proposed examinee may have relevant infor­ mation. " 64 Counsel for the applicants submitted that Vero had placed all relevant information and documentation before the liquidator, and the examinees had no information other than that which was already known to the liquidator. I do not agree. Notwithstanding the voluminous materials put forward by the applicants, there are clear areas on which information is lacking. For example, Mr Hague deposed that on 11 May 2004, Pobjie's eligibility for insurance was increased from $1,000,000 to $1,500,000. The facsimile from the insurance brokers of 14 April 2004, attached a document, apparently from Vero, advising of a conditional increase of eligibility to $2,500,000. The reason for the discrepancy was not explained. 65 The liquidator may wish to investigate whether officers of Vero intended that it would not or might not be issuing any further certificates at the time it accepted and retained the bank guarantee. 66 The liquidator is also entitled to investigate what knowledge officers of Vero had from their dealings with Vero as to Vero's solvency. Vero's assertions that the liquidator had all material information were made in apparent disregard of the possibility that the liquidator might be entitled to set aside any transactions as a voidable preference. 67 I am not suggesting that these are all the areas the liquidator is entitled to investigate. They are sufficient to show that the applicants have not established that the liquidator already knows everything about which he could legitimately inquire. 68 Moreover, in terms of the principle enunciated by Basten JA, it will be difficult to know when the liquidator has "knowledge" of various matters. The liquidator may have reason to believe certain matters about which he has been given information by a proposed examinee. But a liquidator is entitled to investigate whether the same information would be given on oath. 69 As noted above, Mr Hague deposed that he could add nothing to evidence he had given in the proceedings between the Commissioner for Fair Trading and Pobjie and its directors. However, that is a matter which the liquidator is entitled to investigate. In addition to the matters referred to above, it may be noted that in his judgment in those proceedings, Sully J observed (at [165]) that he was unable to discern why no new certificate of eligibility was issued having regard to the agreed further expansion to $1,500,000 of the eligibility limit. It is clear from his Honour's judgment that his Honour did not regard the insurance arrangements between Pobjie and Vero as having been established with complete clarity. Whether Proposed Examinations are a Dress Rehearsal of Cross-Examination for Future Litigation? 70 A liquidator may not use the examination procedures to conduct a dress rehearsal of cross-examination of witnesses anticipated to be called in litigation which is pending or contemplated. That would be an improper purpose. However, by the same token, a liquidator is entitled to apply for the issue of examination summonses notwithstanding that proceedings have been commenced or are contemplated against the examinees, or against other persons in respect of whom the examinees' testimony would provide relevant evidence. In such a case, it would be very likely that an examinee would be examined on the same subject matter as that on which he or she is likely to be cross-examined at the trial of the pending or contemplated action. The question as to whether the examination is improper will depend upon what is stated or should be inferred as to the liquidator's purpose in conducting the examination. 71 The evidence does not show that the liquidator has determined to bring proceedings against Vero. No specific cause of action is identified in his affidavits. Even if he does propose bringing some proceedings, the evidence does not establish that his purpose in bringing the proceedings is to conduct a dress rehearsal of cross-examination. Indeed, the complaint by Vero noted earlier in these reasons that the liquidator was seeking to examine persons who did not have first hand knowledge of the dealings with Pobjie is inconsistent with this submission. If that submission is correct, then it is unlikely that Mr Jameson and Mr Hague would be witnesses in any proceedings commenced against Vero. Whether the Examinations Could be of No Benefit to Pobjie 72 In the present case, the applicants sought to demonstrate that there could be no possible claim against Vero, that consequently the expenditure of moneys on conducting the examination could not have been for the benefit of Pobjie, and that accordingly, so it was submitted, there was either no jurisdiction to issue an examination summons, or, in the exercise of discretion, the examination summonses should be set aside. 73 Mr Jameson submitted that there could not be any bona fide action for damages against Vero arising from any aspect of Vero's dealings with Pobjie, and that Mr Godfrey knew that full well. It was submitted that the application for the issue of examination summonses was an harassment and an abuse of process. 74 Vero also contended that in Pobjie's various applications for eligibility, its director, Mr Thomas Pobjie, made various false statements as to his and Pobjie's assets and liabilities. This, it was said, demonstrated that Pobjie could have no realistic cause of action against Vero so that the proposed examinations were an abuse of process and a waste of the company's resources. 75 The applicants submitted that a "jurisdictional fact" was that when information was sought in regard to actual or prospective litigation, such litigation be for the benefit of the company. It was submitted that Carter v Gartner (2003) 130 FCR 99 was authority for this proposition. The argument dealt with in Carter v Gartner was that the examination summons was sought for providing a collateral advantage to a third party rather than for the company. No such question arises in this case. 76 I reject this submission. It is no part of the Court's task on an application for the issue of an examination summons to discern whether or not the company has a good cause of action against the examinees or a person with whom the examinees are connected. The investigation of facts to ascertain whether or not a cause of action might exist either against such persons, or against other persons, (such as officers of the company), is a proper purpose of an examination. Such an examination is not to be pre-empted by the examinees adducing evidence directed towards demonstrating that they, or persons connected with them, could have no liability to the company. 77 In any event, the grounds on which the submission was based were not made good. Even on Vero's own evidence, matters about which the proposed examinees could provide information would be relevant to investigating claims against third parties, including the directors of Pobjie. As I have already said, there is a serious question for the liquidator to investigate as to whether Vero received a voidable preference. The liquidator is entitled to investigate whether other causes of action may exist against Vero or other persons. I reject this ground of challenge. Material Non-Disclosure 78 An order for the issue of examination summonses is made ex parte. The duty on an applicant for an examination summons to make a full disclosure of all material matters is well established. In Re Southern Equities Corporation Ltd (in liq); Bond & Anor v England (1997) 25 ACSR 394 (a decision of the Full Court of the Supreme Court of South Australia), Lander J, with whom Cox and Bleby JJ agreed, said (at 422-423): "An application for an examination summons is made ex parte. Consequently there is a heavy obligation upon the person applying for the examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporations examinable affairs.

There can be no doubt, in my opinion, that a person who makes an application of this kind is under an obligation to bring all facts and material to the court's attention which might bear upon the order to be made. The applicant has no lesser obligation than that imposed upon a party seeking an injunction ex parte. Indeed, in my opinion, the obligation for frankness and candour is even greater in an application of this kind. That is because, unlike on the return of an interlocutory injunction obtained ex parte, on the return of an examination summons the material supporting the application is not ordinarily made available to the proposed examinee.

Because the proposed examinee, ordinarily, is not privy to the information or material which was used to support the application for the examination summons, the person applying for the examination summons has the very highest obligation relating to frankness and candour and any breach of that obligation, in my opinion, ought to be viewed very seriously by the court.

The obligation is to provide to the court all material which might impact upon the order sought, including all material which might lead the court to refuse the application. The applicant must act in the place of the proposed examinee and therefore draw to the attention of the court anything which might lead the court to refuse the application". 79 Re Coretel Pty Ltd; Linker v Nilant (2003) 48 ACSR 178 and In the Matter of Mendarma Pty Ltd; King & Anor v McDonald [2006] NSWSC 1306 are examples, in recent years, of the application of these principles, leading to examination summonses being set aside. 80 The applicants submitted that there had been numerous non-disclosures. Essentially, their submission was that the liquidator was required, in his affidavit sworn pursuant to s 596C of the Act, to disclose all of the facts and arguments which the applicants deployed on their present application. Thus, it was said that the liquidator failed to disclose that he was already in possession of all information which he reasonably needed to decide whether to bring any proceeding against Vero in relation to any of the matters foreshadowed in his report to creditors. That asserted fact is not itself established. Even if it were, the purposes of the examination are not so limited. 81 In a similar vein, it was submitted that the liquidator failed to disclose that Mr Pobjie's allegations against Vero were fanciful. It was submitted that the liquidator failed to disclose the background (as deposed to by officers of Vero) to Vero's requirement for the provision of a bank guarantee of $225,000. It was submitted that the liquidator failed to disclose that Pobjie had breached various provisions of the Fair Trading Act 1987 (NSW). The argument went to the length of saying that the liquidator failed to disclose the conditions of each certificate of eligibility issued by Vero. If all of these submissions were well-based, the liquidator's affidavit would have had to have run into hundreds of pages and anticipated the arguments advanced by the applicants on this application. 82 However, there was one matter of substance. The supporting affidavit did not disclose what information Vero and the applicants had voluntarily provided to the liquidator. It is conceivable that such information may have been material to the Registrar's decision to issue the examination summonses. 83 The applicants also submitted that the supporting affidavit contained misleading statements. The submission consisted of counsel taking any statement in the liquidator's supporting affidavit and asserting that it was misleading because matters which Vero contended for were not disclosed. For example, in describing the background to the application, Mr Godfrey deposed that his investigations showed that Pobjie had made certain levels of sales in the 2002, 2003 and 2004 financial years. The applicants submitted that his affidavit was misleading because he failed to disclose that at all material times Pobjie was hopelessly insolvent, so that a reference to sales was misleading. It was said that Mr Godfrey's failure to draw to the Court's attention that a basic cause of the company's demise was that its current liabilities exceeded its current assets from 2002, was a serious breach of his duties to the Court. 84 However, assuming that the facts contended for by Vero are correct, (and the alleged facts were themselves based upon some preliminary findings made by Mr Godfrey in his report of 15 October 2004), they are irrelevant to the application for the issue of examination summonses. The argument appears to proceed on the assumption that the Court might only issue an examination summons if it thought there was a plausible claim that Vero caused the company's insolvency. However, that would not be so. It would be a wrong exercise of the discretion under s 596B to so confine the grounds for the issuing of an examination summons. 85 Another illustration of the length to which the applicants' submission went is that it was contended that the liquidator failed to disclose in his affidavit that the limits to the annual turnover imposed by Vero were warranted and justified. It was said that the liquidator should have "frankly acknowledged" in his affidavit that the company was a loss-making entity with an excess of liabilities over assets and that it could not "meet the sales and turnover that it had acquired". It was said that this "fatally undermines any action that Pobjie could take against Vero". 86 Again, it would be a wrong exercise of discretion under s 596B to refuse an examination summons on such a ground. Indeed, the submission rather demonstrates the desirability of an examination for the liquidator to investigate the circumstances in which the bank guarantee of $225,000 was obtained, and the knowledge officers of Vero then had of Pobjie's financial position. 87 I do not propose to go through each of the suggested grounds of non-disclosure and misleading conduct. In my view, only one such ground has been established, and that is, non-disclosure of the extent to which Vero had provided information voluntarily to the liquidators prior to the application. 88 Where there has been non-disclosure, the Court has a discretion whether to set aside the examination summons (Re Southern Equities Corporation Ltd (In Liq); Bond & Anor v England at 424). I do not consider that non-disclosure of the extent of Vero's co-operation is a sufficient reason to set aside the examination summonses. There are proper matters for the liquidator to investigate. I think it likely that the non-disclosure of those matters was inadvertent. Mr Godfrey was not cross-examined. His affidavit displays a conscientious attempt to place relevant matters before the Court. No purpose would be served in setting aside the examination summonses. Full disclosure of the extent of Vero's co-operation has now been made, yet it is plain that it is appropriate for the liquidators to conduct examinations. Were the orders to be set aside, it is almost inevitable that a new order would be made on a fresh application. 89 In summary, I do not regard the non-disclosure of the extent of Vero's co-operation as such to warrant the setting aside of the summonses. I do not regard the other alleged non-disclosures as being material and I do not consider that the affidavit was misleading. Security for Costs 90 The applicants were unable to point to any authority for the Court to make an order for security for costs. It was submitted that the Court had inherent jurisdiction to order such security. Whether that is so or not, there is no occasion to order security for costs. 91 The costs for which security was sought were costs to which it was said the applicants may become entitled pursuant to s 597B of the Corporations Act. That section provides that where the Court is satisfied that a summons to a person under s 596B was obtained without reasonable cause, the Court may order some or all of the costs incurred by the person because of the summons to be paid by the applicant for the summons or by any person who takes part in the examination. 92 On the material before me, there is no reason to think that the summons was obtained without reasonable cause. There is no realistic prospect of an order for costs being made under s 597B. In any event, even if there were, there is no reason to think that the liquidator, who would be liable to pay such costs, would be unable to do so. 93 For these reasons, I direct pursuant to s 596F(1)(a) of the Corporations Act that the matters to be inquired into in the examination of the applicants not include the dealings of Vero Insurance Limited with any builder other than:

(a) Pobjie Agencies Pty Limited (In Liq) ("Pobjie"); or

(b) any builder who had dealings with Pobjie. 94 Otherwise, order that the interlocutory process dated 26 October 2006 be otherwise dismissed. 95 The applicants have had some measure of success in obtaining an order limiting the matters to which the examination is to be directed. I have considered whether that limited degree of success should be reflected in the costs order. However, I have concluded that the applicants should pay all of the costs of the interlocutory process. The applicants did not confine their evidence and submissions to points which were fairly arguable. Whilst there were fairly arguable points to be made, they were combined with arguments that were quite hopeless. In particular, the attempt to prove that Pobjie could have no cause of action against Vero, and that, accordingly, there was no proper purpose to be served by the examination, was hopeless. Not only was it not made good, but even if the premise of the argument were correct, it would not follow that the liquidator was not entitled to conduct the examinations. The proliferation of bad points extended the hearing. Notwithstanding the limited success the applicants have had, I consider, having regard to the way in which the application was conducted, that they ought to pay the costs. 96 I order that the applicants pay the respondent's costs of the interlocutory process.

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