Consolidated Gold Mining Areas NL and Ors v Enterprise [1993] SASC 4359 | Case summary

JUDGE1 OLSSON J These are two appeals which are brought, pursuant to leave, against orders made by a Master on 15 October 1993 and 1 November 1993 respectively. Those orders relate to proposed examinations of certain persons pursuant to the provisions of section 596B of the Corporations Law, and a requirement that certain specified documents be produced in relation to and for the purpose of them. The appellants are proposed examinees under the orders in question. Relevant Background History It is necessary, at the outset, to recite some relevant background history, in order to place the appeals in their proper perspective. 2. On 11 July 1989 an order was made by this Court, in these proceedings, for the winding up of the respondent Company (formerly Kia Ora Gold Corporation NL). As the company in liquidation has consistently been referred to in the litigation as "Kia Ora", I will also similarly refer to it by that name. 3. It is asserted by the liquidator that, in or about August 1987, Kia Ora was considering making a takeover bid for a company known as Western United Limited ("Western United"). 4. Having regard to the provisions of the listing rules of the ASX (upon the main board of which Kia Ora was then listed for official quotation) that could only be done with the approval of the Kia Ora shareholders in general meeting, after prior procurement and circulation of a report and a valuation from independent qualified experts to establish that any proposed price to be paid on the takeover was a fair price for the assets to be acquired. Any such report and valuation was, it is claimed, governed by standards published by the National Companies and Securities Commission in its so-called Policy Statement, Release 102. 5. The liquidator asserts that Kia Ora retained an accounting firm known as "Nelson Wheeler", practising in Perth, to prepare the requisite report and valuation, on the basis that what was in contemplation was an offer involving an exchange of shares and a cash consideration. The report and valuation were required for consideration at an extraordinary general meeting of the shareholders of Kia Ora, proposed to be convened on 26 October 1987. 6. It is the case of the liquidator that Nelson Wheeler had, some months previously, prepared a written valuation report for an acquisition by Western United of a stock broking firm of Ray Porter and Partners Pty Ltd ("Ray Porter"). 7. The liquidator alleges that Nelson Wheeler did, in fact, prepare a report and valuation for Kia Ora pursuant to its retainer, but that, having regard to its knowledge of the Ray Porter transaction and other matters, that report and valuation was inaccurate and incompetent; and also failed to assess the true impact of the proposed takeover on Kia Ora - that it erroneously suggested that the takeover would be beneficial to Kia Ora, which would be better off financially as the consequence of the exercise. In particular, the liquidator says that the report prepared by Nelson Wheeler was negligently inaccurate and incorrect in stating that the proposed offer price for Western United was fair and reasonable. 8. The extraordinary general meeting of shareholders of Kia Ora was duly held on 26 October 1987 and approved the projected takeover. It is averred that it did so on a recommended basis which grossly over valued Western United, whereby Kia Ora sustained a loss of $85,443,058. 9. An action (No 1874 of 1992) ("the main action") was initially initiated by the liquidator on 19 August 1992. It sought damages from the Nelson Wheeler partnership in respect of the loss and also various forms of ancillary relief. The defendants to that action were persons said to have been the former partners of the Perth based firm "Nelson Wheeler". 10. On 8 October 1993 an action (No 1810 of 1993) ("the second action"), claiming like relief, was instituted against some 49 defendants said to have been partners of Nelson Wheeler on a national partnership basis - it being contended that they were either directly or vicariously liable for any negligence or breach of contract of the defendants in the main action. 11. The defendants in the main action were Angus Claymore Pilmer, Alan Robert Crawford, Domenic Vincent Martino, Peter John Messer, Peter Lawson Munachen, Geoffrey James Stokes and Robert John Gray. As I understand the situation, all of those persons were, in fact, members of a firm practising under the name "Nelson Wheeler" in Perth. The defendants in the second action were other persons, said to be partners

with the defendants just named - in the national partnership "Nelson Wheeler".

The issues giving rise to the appeal Against the background above outlined the liquidator applied ex parte to a Master for and obtained orders for the examination of certain persons (who were defendants in the two actions) pursuant to section 596B of the Corporations Law. The orders also directed some examinees both to attend for examination and produce certain stipulated classes of documents.
It is fair to say that the objects of the applications were two fold.
First, the liquidator, having become aware of the fact that the firm practising in Perth as "Nelson Wheeler" appeared to be either a segment of some form of national federation of accountancy practices, or was but a local branch of a single, national partnership entity, sought to investigate that situation in depth, to ascertain the true position and then tailor the litigation accordingly. Indeed the second action was actually initiated after preliminary consideration of the potential national situation and, on one view of the facts, only the day prior to the expiry of a limitation period in relation to the 49 persons named as defendants in it. To that extent it was initially a holding action which, in due course, may well need to be consolidated with the main action.
Second, the liquidator desired to seek information as to the nature and extent of relevant professional indemnity insurance covers held by the various named defendants, or the firms with which they are associated, with a view to determining the likely possibility of recovering any judgment obtained, having regard to the very considerable costs likely to be generated by the litigation. He desired to make a commercial decision as to what potential benefits would flow from proposed causes of action, having regard to capacities to pay; and, I infer, to make a decision, as to whether to join any insurers, with a view to seeking declarations of liability against them.
Having been served with the section 596B orders, the proposed examinees appeared by counsel and argued before the Master that the ex parte orders ought to be discharged on the bases that:- . the conduct of the examinations was inconsistent with the contention of the liquidator that the main proceedings were ready for trial and ought to be tried immediately; . the examinations were simply vehicles to obtain impermissible 'super discovery' of the nature adverted to by Young J in Re Equiticorp Finance Ltd: ex parte Brock (1992) 6 ACSR 725; . the orders were, in form, oppressive as to the volume of documentation to be produced and were outside the scope of the section.
Certain other, more detailed, grounds were also relied upon. The learned Master, after hearing counsel, accepted the proposition that, insofar as the original orders, in terms, required production of documentation related to professional indemnity insurance relevant to any period subsequent to the date of accrual of any cause of action relied on in the main action, they were inappropriate. To give effect to his conclusions he discharged certain orders upon publishing reasons for decision dated 15 October

Before proceeding further it is convenient, at this juncture, to pause to record that, in the main action, third party proceedings were instituted by the defendants against the former Kia Ora directors, alleging that they were in breach of their duty to the company in relation to the factual subject matter of the proceedings. On 2 September 1993 the liquidator applied to join those directors as additional defendants, so as to raise identical issues against them, at his instance. 20. Against the foregoing background the specific grounds of appeal relied on by the appellants are pleaded in these terms:- "1. That the orders made by the Learned Judge were wrong in law. 2. That on the material before the Court the orders made by the Learned Judge ought not to have been made. 3. That as a matter of law the issue of whether or not additional parties should be joined as defendants to the proceedings in Action No. 1874 of 1992 between The Duke Group Limited (In Liquidation) and Pilmer and Others did not constitute an 'examinable affair' pursuant to Section 596B(1)(b)(ii) of the Corporations Law. 4. That as a matter of law the policies of insurance and other documents, applicable to the liability of Pilmer, Martino, Crawford and the other defendants in Action No. 1874 of 1992 did not constitute an 'examinable affair' pursuant to Sections 596 and 597 of the Corporations Law. 5. That on the relevant material the applications of the liquidator of The Duke Group Limited pursuant to Section 596 and 597 of the Corporations Law and dated the 22nd day of September 1993 seeking the attendance of Pilmer, Martino, Crawford, Wenham, Arnold, Grellman, Simmons and Ashby at Court to be examined and to produce documents should not have been made and should be discharged. 6. That having regard to the institution and the conduct of proceedings in Action No. 1810 of 1993 by the liquidator of The Duke Group Limited the orders made by the Learned Judge on 22nd September 1993 against Wenham, Arnold, Grellman, Simmons and Ashby ought not to have been made and ought to have been discharged." 21. Discussion: It is timely to record that the present appeal is not de novo, but by way of rehearing. It is an appeal against the exercise of a judicial discretion and, moreover, it essentially relates, in certain respects at least, to what may fairly be characterised as questions of practice and procedure. The orders made are of an interlocutory nature and do not finally determine the rights of any party. 22. It is trite to say that, in such circumstances, this Court should be slow to interfere. It ought not to overturn the orders made by the Master unless it is convinced that they are plainly erroneous. (Consolidated Gold Mining Areas NL and Ors v Enterprise Gold Mines NL and Anor (1992) 57 SASR 584, Remm Construction (SA) Pty Ltd v Wallbridge and Gilbert Pty Ltd and Ors (1991) 162 LSJS 99 @ 105, Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc and Anor ; 23. In essence the matters sought to be ventilated on the appeal may, in practical terms, be distilled into four basic propositions, namely:- (1) that examinations directed towards whether or not a cause of action exists (either directly or vicariously) against the "national" partners of Nelson Wheeler are not authorised by section 596B of the Corporations Law; (2) that examinations directed towards ascertaining the existence, nature and extent of insurance cover held by Nelson Wheeler, or its partners, are also not authorised by that section; (3) that the available factual material before the Master did not warrant the making of the orders; (4) that, having regard to the initiation and conduct of the second action, it was inappropriate, as a proper exercise of discretion, to permit the examination of persons who were defendants in those proceedings. It is convenient to discuss those issues in turn. In so doing it is necessary, first, to direct attention to the relevant provisions of the Corporations Law ("the Law"). 24. Section 596B of the Law is expressed in these terms:- "Discretionary examination 596B (1) (Where court may summon for examination) The Court may summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (b) the Court is satisfied that the person: (i) has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty or misconduct in relation to the corporation; or (ii) may be able to give information about examinable affairs of the corporation." 25. That provision is complemented by section 596D, which provides that:-, "596D (1) (Summons to require person to attend for examination) A summons to a person under section 596A or 596B is to require the person to attend before the Court: (a) at a specified place and at a specified time on a specified day, being a place, time and day that are reasonable in the circumstances; and (b) to be examined on oath about the corporation's examinable affairs. (2) (Summons may require production of books) A summons to a person under section 596A or 596B may require the person to produce at the examination specified books that: (a) are in the person's possession; and (b) relate to the corporation or to any of its examinable affairs. (3) (Books requested in the application) A summons under section 596A is to require under subsection (2) of this section the production of such of the books requested in the application for the summons as the summons may so require." 26. It is at once to be seen that the power to summon for examination is restricted to matters which may fairly be described as "examinable affairs" related to the corporation in question. 27. That phrase is defined, in section 9 of the Law, as under:- "'examinable affairs', in relation to a corporation means: (a) the promotion, formation, management, administration or winding up of the corporation; or (b) any other affairs of the corporation (including anything that is included in the corporation's affairs because of section 53); or (c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation's examinable affairs because of paragraph (a) or (b);" 28. It follows that resort must also be had to the content of section 53 of the Law to gain a comprehension of the full ambit of the definition. That section is both lengthy and very comprehensive in its span. For present purposes it is necessary only to advert to the following excerpt from it:- "Affairs of a body corporate 53 For the purposes of the definition of 'examinable affairs' in section 9, section 53AA or 260, paragraph 461(e), section 487, subsection 1307(1) or section 1309, or of a prescribed provision of this Law, the affairs of a body corporate include: (a) the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body;" 29. Section 53, in turn, depends (in part) for its efficacy upon the section 9 definition of the word "property". That definition reads:- "'property' means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action;" 30. The net consequence of those statutory provisions is that, inter alia, the Court is empowered to summon a person for examination:- . about the promotion, formation, management, administration or winding up of a corporation, or . about the affairs of a body corporate, including its transactions and dealings and its legal or equitable estate or interest (whether present or future, vested or contingent) in real or personal property of any description, including choses in action. The only pre-requisite requirement, in relation to a proposed examinee, is that such person "may be able to give information" about such matters. 31. As was submitted by Mr Gray QC, of senior counsel for the liquidator, the scope of the statutory provisions is very wide and extends both to the affairs of the relevant corporation prior to the winding up and matters arising during the actual winding up process. He properly invited attention to what was pointed out by Bryson J in Re BPTC (In Liquidation) at 764 in these terms:- "a matter can be an affair of the corporation even though nobody knows that it is at the time, or knows of it at all. It can be an affair of the corporation that circumstances exist in which other persons are vicariously liable for breaches of duty of a director, even though no claim has been made, even though no one has adverted to the

take in discharging his duties. The commercial reality of pursuing long and expensive legal proceedings for a very large sum of money against individuals of finite resources is clearly a matter as to which he needs to make a judgment, based upon the likelihood, or otherwise, of potential ultimate recovery from a relevant insurer. (As to this, what fell from Mason CJ in Hamilton v Oades [1989] HCA 21; (1988-9) 166 CLR 486 at 497 is pertinent.) The authorities undoubtedly establish that it is no bar to the making of orders for examination which bear on litigation already on foot (Re Laurie Cottier Productions Pty Ltd (in liquidation) (1992) 9 ACSR 513, although the Court will, no doubt, proceed with caution to ensure that orders of this type are not permitted to become vehicles for oppression and patent abuse of process (Re Rothwells Ltd (No 2) (1989) 7 ACLC 576 at 588). 35. Nor is it to the point to declaim that the making of an order for examination, where proceedings are already in train, unfairly confers on a liquidator an advantage not enjoyed by other litigants (In Re John Arnold's Surf Shop Pty Ltd (in liquidation) (1979) 23 SASR 222). 36. Dicta to be found in Hamilton v Oades (supra) and Re Spersea Pty Ltd (in liquidation) (1990) 3 ACSR 87 stress that an important public purpose is served by enabling a liquidator to gather information which will assist him in the winding up and protect the interests of creditors. After all the liquidator necessarily comes upon the scene without any prior knowledge of the detailed activities which have taken place both within the corporation in liquidation and also as between it and those with whom it has had dealings. 37. To employ the words of McDonald J in Re Spersea Pty Ltd (in liquidation) (supra) at 90 "to not make an order in the circumstances existing where the transactions, the subject of the proposed examination, are also the subject of other litigation before the Court would be to impede and shackle the function of the liquidator in winding up the company.": (see also Street J in Re Hugh J Roberts Pty Ltd and Companies Act (1970) 2 NSWR 582 at 584-5). 38. Moreover, and for the same reason, it is no proper objection to complain that, by resort to a section 596B examination, a liquidator can obtain information which would have been denied to him within normal civil proceedings as between party and party, pursuant to traditional processes of discovery and interrogation (Waddell CJ in Eq in Re Laurie Cottier Productions Pty Ltd (in liquidation) at 517). As the learned Chief Judge there pointed out, the liquidator (inter alia) needs information as to the availability of and likelihood of being able to realize assets. It is legitimate for him to use an examination to enable him to decide whether proceedings already commenced should be continued. Further, as he also there emphasized, the modern view is that facilitation of the accountability to individual creditors or contributors, as well as to the corporation itself, of those who have participated in the corporate affairs prior to the winding up is, these days, regarded as sufficiently related to the winding up to justify resort to provisions such as those in section 596B. 39. It only remains to recognise that a proposed examinee has no right to be heard on a section 596B type application (Re Hall Autotorium Pty Ltd (in liquidation) (1984) 2 ACLC 277 at 281). The liquidator merely has to show that there is a reasonable basis for asserting that an examinee "may" be able to give relevant information. 40. It is for the court to assess the information adduced by the liquidator and decide whether the proposed examination appears to be justified (Spedley Securities Ltd v Bank of New Zealand (1991) 6 ACSR 331 at 334). An examinee, in seeking to set aside an order already made, is not entitled "to have the liquidator start from scratch again to justify the ... order". 41. It will normally be for the examinee to adduce further evidence if that person is successfully to impugn the validity of the order - certainly insofar as any discretionary element is concerned (Re Stirling Henry (1971-3) ACLC 27,300 at 27,304, 27,305, Shapowloff v Stirling Henry Ltd (in liquidation) (1972) 2 NSWLR 691). In the instant case there has been a good deal of rhetoric advanced on behalf of the examinees, but precious little factual evidence either to justify their intransigent attitude or to impeach the exercise of discretion now under attack. 42. Finally I am unable to perceive anything in the liquidator's conduct of the main action and the second action which would render it oppressive or an abuse of process for the examinations to proceed. The need to institute the second action was the impending expiry of a limitation period. What has been done has been the product of a counsel of prudence. 43. On the other hand I find it impossible to envisage how it can be said that any of the litigation between the parties is ready for trial, even the main action - when the proposed examinations are still pending, joinder and pleading aspects are incomplete (however formal they may appear to be) the legal relationship between the main action defendants and those in the second action remains to be explored, and the issue of the possible consolidation or other relationship between the two extant actions remains unresolved. However, that has implications as to trial dates, not here in question. 44. Having regard to the conclusions above expressed I am unable to see any basis upon which the orders made can be impugned. They were patently within power and it has simply not been demonstrated that the Master has erred in his exercise of judicial discretion. On the contrary they fall well within the principles so usefully summarised by Nicholson J in Re Rothwells Ltd (No 2) (supra) at 587-589. 45. I would dismiss both notices of appeal. In so saying I by no means ignore the argument of Mr Mansfield QC, of senior counsel for the examinees, that the second paragraph of the schedule to each order is too widely expressed. It seems to me that the short answer to his complaint is that it always remains open to an examinee to claim legal professional privilege, or to mount any other lawful objection in respect of specific documents during the course of the examinations, if so advised. Any such claim or objection may be dealt with by the Master at the time of the examination in question.

Consolidated Gold Mining Areas NL and Ors v Enterprise

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

GERAH IMPORTS PTY LTD v. THE DUKE GROUP LTD (IN LIQUIDATION) No. SCGRG 89/1087 Judgment No. 4359 Number of pages - 11 Corporations (1993) 12 ACLC 116 (1993) 61 SASR 557 [1993] SASC 4359 (23 December 1993)

Parties

Cases Cited (8)