Contura Mining Pty Ltd, in the matter of B.J. Jarrad Pty Ltd (in liq) v Mableson [2015] FCA 1362 | Case summary

REASONS FOR JUDGMENT 1 On 16 October 2015, a judge of this Court made an order requiring the applicants to produce documents in defined categories at the examination of Mr Christopher Mallios pursuant to s 597 of the Corporations Act 2001 (Cth) (the Act) on 26 October 2015. The order was made pursuant to s 597(9) of the Act. 2 The applicants sought leave to appeal against the order insofar as it requires production of one of the categories. That is the order that they produce the annual and any quarterly and six monthly financial statements for the first applicant, Contura Mining Pty Ltd (Contura), and the second applicant, Contura Equipment Financial Services Pty Ltd (Contura Equipment). I will refer to these documents as the Category 3 documents. 3 At the conclusion of the hearing on 16 November, I refused leave to appeal and said that I would publish reasons later. What follows are those reasons. 4 It was common ground that the order of the Judge on 16 October 2015 was an interlocutory judgment so that an appeal against it lies only with leave - s 24(1A) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). In accordance with s 25(2) of the FCA Act, the application for leave was heard by a single judge. 5 I mention at the outset the applications by the applicants for a stay of the Judge's order with respect to the Category 3 documents. The applicants did not comply with the order for production of the Category 3 documents to the Court, although they did produce the other documents which were the subject of the Judge's order. The application for leave to appeal, which was filed on 30 October 2015, included an application for a stay of the order concerning the Category 3 documents, but this was filed after the time at which compliance with the Court's order of 16 October was required. 6 On 6 November 2015, the applicants filed a separate interlocutory application seeking a stay of the Judge's order insofar as it concerned the Category 3 documents. Given that an application for a stay had been included in the application filed on 30 October 2015, this separate application was unnecessary. Given the conclusion I reached on the application for leave, it is not necessary to address either of these applications. 7 The background to the application is as follows. On 4 September 2014, the respondents (Mr Mableson and Mr Lewis) were appointed joint and several liquidators of B.J. Jarrad Pty Ltd (BJ Jarrad) and Jarrad Equipment Holdings Pty Ltd (Jarrad Equipment). BJ Jarrad had previously been in a voluntary administration which had commenced on 16 September 2011. On 11 November 2011, BJ Jarrad had entered into a Deed of Company Arrangement with its creditors. This had involved the establishment of a fund of $1 million for creditors and the execution of a shareholders' agreement between BJ Jarrad, Jarrad Equipment and Mr Jarrad (the principal of the companies), on the one hand, and Contura, on the other. The effect of the shareholders' agreement and a later loan agreement was that Contura acquired 49.9% of the shares of each of BJ Jarrad and Jarrad Equipment in consideration for its contribution of the $1 million constituting the fund under the Deed of Company Arrangement. In addition, Contura had an option to apply for a further 1% of the shares in each of JB Jarrad and Jarrad Equipment at any time on payment of an additional $1; Contura and Mr Jarrad agreed to commit to undertake a commercial venture together; Contura and Mr Jarrad each agreed to pay $500,000 to BJ Jarrad as working capital, to be recorded as loans; Mr Jarrad and Contura agreed that each shareholder was entitled to appoint one director to the board of each of BJ Jarrad and Jarrad Equipment and that the chairman would not have a casting vote; and that each of the shareholders would have full access to the books and accounts of the companies. 8 The respondents were appointed as administrators of BJ Jarrad and Jarrad Equipment on 31 July 2014. At that time the shares in the two companies were owned as to 50.1% by Mr Jarrad and as to 49.9% by Contura. 9 During the relation back period from 1 February 2014 to 31 July 2014, BJ Jarrad made payments to Contura totalling $5.04 million. The respondents consider that some or all of these payments may constitute preference payments under Pt 5.7B of the Act. In addition, during the relation back period, Contura lent BJ Jarrad the sum of $4.14 million and BJ Jarrad paid the sum of $71,013.27 to the third applicant, CFC Holdings Pty Ltd (CFC Holdings). 10 Mr Mallios was the Chief Financial Officer of Contura from 9 January 2012 to 29 June 2015. 11 As a result of their investigations to date, the respondents consider that Contura, Mr Mallios and potentially other persons within the applicant group of companies may have been exercising such a degree of control over BJ Jarrad and Jarrad Equipment that they were "de facto directors" from November 2011 or, in the alternative, during at least part of 2014. The respondents have reason to believe that BJ Jarrad was insolvent before their appointment as administrators on 31 July 2014, with the effect that the directors may be liable for insolvent trading under Div 3 of Pt 5.7B of the Act. 12 In these circumstances, the respondents sought to examine a number of persons, including Mr Mallios. On 20 August 2015, a District Registrar issued, pursuant to s 596A of the Act, a summons to Mr Mallios requiring him to attend for examination about the examinable affairs of BJ Jarrad and Jarrad Equipment. Subsequently, on 24 September 2015, a different District Registrar made an order pursuant to s 597(9) of the Act for the production of documents by the three applicants. 13 Then, on 9 October 2015, Mr Mallios and the present applicants applied for orders setting aside, amongst other things, the orders made on 24 September 2015. On the hearing of that application, the respondents proposed orders requiring the production of more limited documents than those which were the subject of the District Registrar's order on 24 September. During the course of the hearing, these proposed orders were refined still further. 14 Ultimately, the Judge did set aside the order of the District Registrar made on 24 September 2015, and made an order for production of documents in the terms proposed by the respondents: Mableson, in the matter of BJ Jarrad Pty Ltd (in liq) [2015] FCA 1177. It is part of that order which is the subject of the present application for leave to appeal. 15 The Judge gave the following explanation for this part of his order: [11] ... The potential claims against the CFC Group are preference claims and a claim against directors for insolvent trading. Contura had an investment in the company and Holdings, and that investment and how it is dealt with is, one may assume, recorded in its financial statements. It had a loan account with the company and again, one may assume, that and how it is dealt with is recorded in its financial statements. Construction Equipment is an entity which, according to Mr Whelan, "assists with the financial transactions in the Contura and CFC Holdings". The insolvent directors trading claim potentially goes back to 11 November 2011 when the Deed of Company Arrangement was executed. The documents are not being sought by a commercial competitor and there is no reason to think that they would fall into the hands of such a competitor. Within the confines of the order I have made, and recognising the effect of the order, there is no reason to think that the Court to which the documents are produced could not add a further layer to the confidentiality of the documents if that was considered appropriate. Finally, without seeing the documents and understanding them, I was not at all confident that I could make a more confined order appropriate to the circumstances of this case. 16 Although the discretion to grant leave to appeal conferred by s 24(1A) is unfettered, the approach to its exercise taken by the Full Court in Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 655; (1991) 33 FCR 397 has been influential. The Court enquired, first, whether in all the circumstances, the judgment at first instance was attended by sufficient doubt to warrant it being reconsidered by the Full Court and, secondly, whether substantial injustice would result if leave were refused, supposing the decision to be wrong. Those tests are not to be applied in a rigid way, having regard to the variety of the forms of interlocutory decisions which may be made. The Full Court in Samsung Electronics Co Ltd v Apple Inc [2013] FCAFC 138 at [19] spoke of the need for flexibility as follows: [19] The very width of the discretion and the prudence in not seeking to confine the manner in which it is to be exercised is a necessary corollary of the myriad of interlocutory decisions which may be made - ranging from interlocutory decisions affecting the substantive rights of parties (and effectively being final orders) to matters of practice and procedure (including decisions to extend time, the granting or refusal of adjournments and the filing of evidence). The different character of interlocutory decisions which may be made and the different factual and forensic circumstances in play when such decisions are made nevertheless have occasioned a different emphasis from one judgment to another upon one particular factor or factors rather than others. 17 The decision of the Judge under s 597(9) to order the production of the Category 3 documents was an exercise of a discretionary judgment. As such, a review of the judgment on appeal would engage the principles stated in House v The King (1936) 55 CLR 499 at 505. That is to say, it would have to be shown that the primary Judge made an error in the exercise of the discretion. Such an error may be demonstrated if it be shown that the Judge acted upon the wrong principle, that he allowed extraneous or irrelevant matters to guide or affect him, that he mistook the facts, or that he failed to take into account some material consideration. 18 The draft notice of appeal indicates that the applicants wish to contend that the decision of the Judge is affected by two errors of this kind: first, that the order for production of the Category 3 documents was in excess of power and oppressive because the respondents had not demonstrated that those documents related, or would relate, to the "examinable affairs" of BJ Jarrad and Jarrad Equipment and to the matters to which the examination of Mr Mallios would relate; and, secondly, that the order should have limited the required production to only those financial statements containing information relating to BJ Jarrad and Jarrad Equipment so as to protect the applicants' confidentiality. 19 On the hearing of the application for leave, counsel for the applicants articulated a revised position. He contended that the respondents had not adduced any evidence that BJ Jarrad had been accustomed to act in accordance with the instructions or wishes of Mr Mallios so as to indicate that he may have been a shadow director in the manner contemplated by the definition of "director" in s 9 of the Act. That being so, it was said that the respondents had failed to demonstrate that the financial statements related, or would relate, to the examination of Mr Mallios. The submissions seemed to be that, unless and until the respondents adduced evidence that it was Mr Mallios in particular who had given the instructions amounting to a shadow directorship, the documents sought could not relate to his examination. The complaint, by implication, was that the primary Judge had erred by not recognising this. 20 In my opinion, the draft notice of appeal did not particularise a complaint in these narrow terms, although, at a level of generality, it may have been encompassed by the second limb of the first of the proposed grounds. Nor was such a complaint articulated in the applicants' written outline of submissions in support of the grant of leave to appeal. Further still, and perhaps more significantly, the applicants had not articulated this position before the Judge. As counsel acknowledged, it is difficult in these circumstances for the Court to conclude now that it is reasonably arguable that the Judge erred by failing to have regard to a consideration which was not agitated before him. 21 The applicants referred to authorities indicating that the power contained in s 597(9) should be exercised only for the purpose for which it is granted, namely, the purpose of facilitating the obtaining of information from the examinee and not for the purpose of obtaining information more generally. In Re BPTC Ltd (in liq) (No 3) (1993) 29 NSWLR 708 at 711-12, McLelland J said: It is necessary in considering the propriety of an order for the production of documents ancillary to an examination under s 597, to ensure that the demands made by the order do not "exceed the legitimate requirements of the particular occasion" ... This is of particular importance where, (as in the present case) the examinations are to be held in public, and the documents required to be produced include documents in respect of which the party required to produce them has a legitimate interest in maintaining their confidentiality. I said in Re BPTC Ltd (In liq) (at 721) that the only legitimate function of an examination under s 597 is the obtaining of information and (in view of subs (14)) evidence, in relation to the affairs of the relevant corporation. I would qualify this by adding that the obtaining of evidence is properly to be treated only as incidental to the obtaining of information, and not as an independent function of such an examination. Furthermore, it is not within the legitimate function of such an examination to obtain information (or evidence) otherwise than from the individual being examined ... The compulsory production of documents by a party other than the individual being examined is available only for the purpose of facilitating the obtaining of information (and evidence) from the individual being examined, not for the purpose of obtaining information (or evidence) independently of the examination of that individual. Of course the distinction is not clear-cut because information may legitimately be obtained from an examinee in relation to documents produced by another party. 22 Other authorities have emphasised the need for sensitivity by the Courts to the rights of parties to privilege against production, to confidentiality and to limited circulation and use of information disclosed under compulsion. See Re BPTC Ltd (in liq) (1993) 10 ACSR 756 at 763; Re South Pacific Energy Trading Pty Ltd (in liq) (1996) 40 NSWLR 264 at 267. 23 The difficulty for the applicants with respect to the proposed first ground of appeal is the Judge's finding that it is reasonable to assume that Contura's investment in BJ Jarrad and Jarrad Equipment would be dealt with and recorded in its financial statements, as would its loan account. The applicants do not dispute that conclusion and, indeed, accept that the way in which an investment or loan is or is not recorded or "dealt with" in financial statements is a legitimate topic for examination of Mr Mallios. Further, the applicants had acknowledged before the primary Judge that the financial statements in which BJ Jarrad and Jarrad Equipment were mentioned were relevant to the examinable affairs of those companies. That being so, the first ground of appeal does not seem to be reasonably arguable. 24 It was not suggested on the leave hearing that any distinction should be drawn between the position of the three applicants in this respect. 25 The applicants' second proposed ground of appeal is that the order should have been crafted so as to permit production of the documents in part only, or in redacted form. The Judge did not overlook the applicants' claims about the confidentiality of the documents. It is evident from the Judge's reasons that he considered some form of partial production of the document as a possibility and rejected it. The Judge gave reasons for this conclusion, namely, that there was no reason to think that the documents, once produced, would fall into the hands of a commercial competitor of the applicant and, further, that the Court could, once the documents were produced, make appropriate orders for the preservation of their confidentiality. This is consistent with the approach taken by courts in the analogous field of subpoenas (National Employers' Mutual General Association Ltd v Waind (1978) 1 NSWLR 372), and can hardly be regarded as wrong in principle. 26 Further, the transcript of the submissions before the Judge indicates that he raised specifically with counsel for the applicants the difficulty of understanding a financial statement by reference to only one item in the statement and without regard to the contents more generally. 27 The applicants do not identify an error by the primary Judge in this reasoning and this ground of appeal is not reasonably arguable. Instead, it seems that the applicants wish to ask the Full Court to consider afresh the exercise of the discretion involved, having regard to their claims of confidentiality, so that they be required to produce the Category 3 documents with all portions which do not refer expressly to BJ Jarrad or Jarrad Equipment redacted. 28 I return to the submission, made only by implication, that the primary Judge erred by not requiring evidence that BJ Jarrad and Jarrad Equipment had been accustomed to act in accordance with the instructions of Mr Mallios. In my opinion, it is not reasonably arguable that s 579, and in particular s 579(9), required this level of proof from the respondents in relation to their application for the production of documents. They had adduced evidence showing a basis for their suspicion that the applicants had issued instructions or directions to BJ Jarrad and Jarrad Equipment. Plainly this was a topic within the "examinable affairs" of BJ Jarrad and Jarrad Equipment, having regard to the wide definition of that term contained in s 9 of the Act. 29 Contrary to the applicants' submissions, it was not necessary for the respondents to adduce evidence, for the purposes of obtaining the order for production pursuant to s 579(9), that Mr Mallios was the particular officer within the applicants who had given instructions or directions to BJ Jarrad or Jarrad Equipment, or that those entities had been accustomed to act in accordance with those instructions or directions. As counsel for the respondents observed, the respondents were entitled to investigate the existence of shadow directorships, and did not have to adduce prima facie proof that such directorships existed before being able to examine on the topic. It is open to the respondents to examine Mr Mallios with a view to eliciting information bearing upon whether he, some other identified person, or some unidentified person within the applicant group had given instructions and directions to BJ Jarrad and Jarrad Equipment. 30 Again, contrary to the submission of the applicants, it was not necessary for the respondents to adduce evidence, before being able to make these enquiries, that BJ Jarrad and Jarrad Equipment had been accustomed to act in accordance with instructions or directions from the applicants. 31 I note again the applicants' acknowledgement that no submission had been made to the Judge that he had to be satisfied about these matters before making any order for production of the financial statements. In effect, the applicants wished to contend on appeal that the primary Judge erred by failing to consider an argument which had not been made to him. 32 For these reasons, I considered that the proposed grounds of appeal were not reasonably arguable and that leave to appeal should be refused. As indicated earlier, that made it unnecessary to consider the application for the stay. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.

Contura Mining Pty Ltd, in the matter of B.J. Jarrad Pty Ltd (in liq) v Mableson

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