Damieletto v Khera [2003] NSWSC 924 | Case summary

1 Each of the applicants, Mrs Tszyu and Mr Papaspiros, challenges certain parts of an order for production made on 6 August 2003. Each such order was made at the same time as an examination summons was issued under s.596B of the Corporations Act 2001 (Cth), the person to whom the summons was directed not being within any of the classes referred to in s.596A in relation to the company concerned. That company is Total Entity Pty Ltd of which the respondent, Mr Wily, is liquidator. 2 At the beginning of the hearing, Mr Cohen of counsel, who appeared for the liquidator, submitted that the court had no jurisdiction in relation to the applicants' claims. It was submitted that, because of Corporations Act Rule 11.5 and the fact that the applicants' interlocutory processes were not filed or served within three days after service for the orders for production, the court had no power to entertain the applications. This submission was made on the general footing that, as in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, the time limit was both strict and compulsory and that this was so despite a clear power to extend time conferred by Corporations Act Rule 1.10. 3 In the end, it became unnecessary for me to decide this issue since I was of the view that the orders for production were not affected by Corporations Act Rule 11.5. That rule applies to an "examination summons" which, according to the Corporations Act Rule 11.1 definition, is "a summons under ss.596A or 596B of the Law for the examination of a person about a corporation's examinable affairs". 4 A submission that each order for production was within that description must be rejected since, by its terms, the order requires only the production of documents to the court as distinct from attendance of a person for examination which is the essence of a summons under ss.596A or 596B. The alternative submission that the order was a "direction about access to records of the examination", as referred to in s.596F(1)(e), must also be rejected, on the footing that there can be records of an examination only if there has been an examination, that is to say, if an examination has occurred, and none has yet taken place in either of these cases; added to which such a direction could not, in any event, be within the definition of "examination summons" under Corporations Law Rule 11.1. 5 There is also not the insignificant point that each order carries, at the top of its first page, the notation "Pt 36 r12" thus indicating quite clearly, it seems to me, that it is sourced in Part 36 rule 12 of the Supreme Court Rules. 6 The commonplace use of such orders in conjunction with, or as a supplement to, examination summonses under ss.596A and 596B of the Corporations Act has been noted by the court on at least three recent occasions in cases arising under the present legislation as most recently amended in 1998. The cases are Re Leisure Developments Pty Ltd (2002) 41 ACSR 276, Re Chircan Holdings Pty Ltd (2002) 21 ACLC 29 and Re Allstate Explorations NL (2003) 46 ACSR 379. 7 The hearing before me eventually proceeded on the basis that each of the orders for production was no more and no less than what it purported to be, that is, an order under Part 36, rule 12. Each applicant seeks, in relation to the relevant order, either review of the order itself (that order having been made ex parte) or an order setting it aside in part. Neither applicant objects to the whole of the order. The objection is to certain specific production requirements only. The same considerations apply to both aspects of the challenge and it is convenient to go immediately to the merits. 8 The subject company, Total Entity Pty Ltd, was a provider of promotional or sponsorship services and in that capacity was retained to provide services to one or more of Mr Kostya Tszyu, a well known boxer, Top Ring Events Pty Ltd, Tszyu Boxing Academy Pty Ltd and possibly to KOT Family Trust, all of which are associated with Mr Tszyu. The present applicants are Mr Tszyu's wife and his accountant, who is also the accountant for the associated entities. Each order for production contains a definition of "Tszyu Entities", which means any one or more of Mr Tszyu, Mrs Tszyu, Mr Tszyu's father, Boris, KOT Holdings Pty Ltd, KOT Enterprises Pty Ltd, Top Ring Events Pty Ltd, Tszyu Boxing Academy Pty Ltd and KOT Enterprises Pty Ltd or any other trustee of the KOT Family Trust or the Tszyu Family Trust. 9 Among the classes of documents each order requires to be produced are, and I paraphrase, first all, documents concerning the engagement by the Tszyu entities of any agreement or the like between the Tszyu Entities and any one or more of six named persons and corporations in the period 1 January 1991 to 31 July 2003 (paragraph 8); second, all documents concerning any liabilities of any of the Tszyu Entities to tax on income or receipts or withholding tax liability in the period 1 January 1999 to 31 July 2003 (paragraph 9); third, all balance sheets and profit and loss accounts and the like of all the Tszyu entities and entities of which any was a shareholder or proprietor in the period 1 January 1999 to 31 January 2003 (paragraph 10); fourth, all bank records and the like of the Tszyu Entities in respect of accounts maintained within the period 1 July 1999 to 31 July 2003 (paragraph 11); fifth, all documents relating to any credit card account of Mr Tszyu held in the period 1 July 1999 to 31 July 2003 (paragraph 13); and sixth, all documents concerning moneys received by the Tszyu Entities from or payable to the Tszyu Entities by certain specified persons or classes of persons (paragraph 14). 10 The parts of the summonses challenged are those requiring documents of the description I have just outlined. The ground of objection is, in essence, that documents of this kind can have no relevance to anything the liquidator will be considering in the course of the winding up of Total Entity. As to the first category, it is said that the Tszyu entities have not had a relationship with the named persons and entities since 1994 when one of them, Mr Mordey, ceased being Mr Tszyu's manager and that the only current contact is in relation to pending litigation with one of them. As to the second, third, fourth and fifth categories, it is said that the documents are of a highly confidential and sensitive nature. Particulars are given in evidence of the steps taken to keep them private and secure. 11 As to the credit card records in the fifth category, it is said that Mr Tszyu maintains one credit card only for business and that any others are used predominantly and overwhelmingly for personal expenses. As for the sixth category, it is said that the Tszyu Entities derive most of their income from the persons named and that the documents are confidential and sensitive. 12 The objection to production is thus twofold. There is an objection based on the apparent lack of relevance of the documents sought to the liquidator's functions; and there is an objection based on the confidential and sensitive character of the documents. 13 The liquidator says that the documents are relevant to his functions. An affidavit of the liquidator's solicitor says that he is informed by the liquidator that the documents are relevant to the examinable affairs of Total Entity in relation to its dealings with the Tszyu Entities. I admitted that evidence pursuant to s.75 of the Evidence Act. The solicitor also testifies to his own view that the documents sought are relevant to the conduct of the s.596B examinations of Mrs Tszyu and Mr Papaspiros. 14 The applicants did not make application under s.596C for access to the affidavit sworn by the liquidator in support of his application for the issue of the examination summonses in respect of Mrs Tszyu and Mr Papaspiros; nor did the liquidator seek to tender a copy of the affidavit. I am thus in the position Bryson J described in Re BPTC Limited (1993) 10 ACSR 756 of having no insight from the initiating evidence into the reasons behind the examination summonses and the related orders for production with which I am now concerned. I do have the unilateral statements of the liquidator and his solicitor as to the relevance of the documents to the proposed examinations, but such unsupported assertion is not, it seems to me, sufficient to overcome the prima facie position described by McLelland J, as CJ in Eq, in Re South Pacific Entities Trading Pty Ltd (1996) 40 NSWLR 264. His Honour was speaking of directions for production under s.597(9) but the principle applies also to orders for production of the kind with which I am dealing. He said: "In the absence of any evidence on behalf of the liquidator showing any need, for the purpose of any particular contemplated examination, to have the applicants subjected to directions in these terms, I would conclude that the directions exceed the legitimate requirements of the occasion and are in that sense oppressive and should be set aside." 15 In this case, however, I have before me an additional piece of evidence from the liquidator which is of pivotal importance. It is a copy of the report as to affairs lodged with ASIC by Mrs Bennell, a director of Total Entity, in respect of Total Entity. Among the assets shown in that report is an item designated "sundry debtors" in the sum of $12 million. The debtors in respect of this $12 million debt are shown as Mr Tszyu and three companies, being three of the Tszyu Entities referred to in the orders for production. The liquidator is thus in a position where he is informed by a director of the company in liquidation that a debt of $12 million is owed to the company by these persons. 16 In these circumstances, it is obviously incumbent upon the liquidator not only to investigate the basis for and strength or substance of the claim in respect of $12 million but also to inquire appropriately into the capacity of the persons concerned to meet any judgment that may be obtained, that being in a general sense an important aspect of the liquidator's decision-making as to the course he should consider taking in relation to the alleged $12 million debt. 17 Where there are claims against several entities which exist and operate as part of a collection of related or allied entities having or likely to have commercial and financial connections with one another, the enquiry the liquidator is obliged to undertake may well extend beyond the named entities themselves. In Re Global Medical Imaging Management Pty Ltd (2001) 38 ACSR 214, Santow J made comments about the special and privileged position conferred by the legislation on liquidators: "When complaint is made about the liquidator thereby gaining a forensic advantage, two things must be emphasised. First, that forensic advantage is a consequence of the legislature's conferment of these compulsory examination powers, in the intended interests both of creditors and contributories of failed companies. Second, early information may not only lead to pursuit of fruitful claims. It may also lead to the sensible abandonment of less fruitful ones, for the liquidator is operating with scarce resources. The liquidator has a duty to the court as well as to creditors not to abuse these wide powers." 18 The present applicants bear the onus of showing that there are grounds on which the orders for production should be set aside. This was emphasised by the Court of Appeal in Sherlock and Vanguard Pty Ltd v Permanent Trustee Australia Limited (1996) 22 ACSR 16. The applicants' basic argument, as I have said, is that the documents sought are so remote from what would be thought to be the proper concerns of the liquidator that there is a lack of legitimate purpose in requiring production that amounts to an abuse of process or an exercise in oppression. Given the content of the report as to affairs and the clear necessity for the liquidator to investigate the recoverability of an alleged debt of $12 million said to be owing to Total Entity by Mr Tszyu and related entities, this simply cannot be so. I am satisfied that the various categories of documents, viewed in the light of connections the alleged debtors in respect of the $12 million may be expected to have, are logically connected with the general issue of financial substance of the alleged debtors sufficient to warrant examination and production of documents in that respect. 19 The challenge to the nominated paragraphs of the order for production, whether by way of review of the original ex parte order or by way of striking out, must therefore fail. 20 Two questions remain. The first is the issue of confidentiality of the documents. The liquidator, I might say, accepts that some of the documents are of a confidential and sensitive kind. The respective solicitors have exchanged correspondence about an appropriate confidentiality regime and while there is, it seems, broad agreement in principle, the solicitors have not reached an agreement as to the terms of such a regime. They may well do so with greater effort. 21 It is, of course, significant that the orders are orders for production of documents to the court. Delivery of the documents to the court satisfies the order. Whether or not the liquidator will then be permitted access to them is something that the liquidator may then pursue. Decisions will be made by reference to specific documents according to their specific content and orders as to confidentiality may be made by the relevant judicial officer after inspection of the documents gives an informed insight into their sensitivity, if any. 22 It is not appropriate, at this stage, to attempt to deal with confidentiality by reference to descriptions of classes of documents. I would, however, urge the parties to attempt to agree on some consensual regime and to avoid the need to have the court make decisions document by document upon a contested application for access. There must be some common ground relatively easily discoverable. 23 The final claim of the applicants is a claim that the liquidator pay such amount as the court considers just in respect of compliance by the relevant applicant with the order for production. In this respect the applicants seek to equate the orders for production to subpoenas in relation to which the Supreme Court Rules make specific provision for the payment of reasonable expenses of compliance (see Part 37 rule 3). 24 Mr Alkadamani, who appeared for the applicants, drew my attention to the decision of Bryson J in Danieletto v Khera (1995) 35 NSWLR 684, where the inherent jurisdiction of the court in relation to subpoenas was discussed. His Honour said, "The court's inherent power to administer justice includes, as an incident of the subpoena power, the power to order a party to pay such expenses and to assess the amount." 25 There are, I think, two points of distinction to be noted in relation to the present situation. First, an order for production as employed in the present context is an adjunct to a specific statutory jurisdiction in the exercise of which the court orders a person to appear for examination, thus creating a trial, hearing or "other occasion" mentioned in Part 36 rule 12. In a case such as the present, the person upon whom the order for production operates is also subject to a statutory compulsion to attend for examination, to which the compulsion to produce documents is, in a sense, ancillary. This leads to the second point. Section 597B, dealing with examinations as such, says that if the court is satisfied that an examination summons was obtained without reasonable course, it may make an order for the payment of some or all of the costs incurred by the person summoned, because of the summons. It is thus clear that the present application is not to be approached on the same basis as a subpoena addressed to a non-party. A more reliable (but not perfect) analogy is with a notice to produce addressed to a party. 26 The present claim for expenses of producing documents should not be addressed separately from the examinations themselves. If, in due course, the applicants can show an entitlement to an order for the payment of expenses under s.597B, the part of the overall expenses associated with compliance with the orders for production may well be taken up at the same time. Indeed, it may be that there will be claims for expenses beyond the limits contemplated by s.597B. In Re Imobridge Pty Ltd [1999] 1 QdR 38, Lee J considered in some depth the issue of expenses of persons required to attend liquidators' examinations. His honour referred to the decision of McLelland J in Re Kempal Pty Ltd (1989) 17 NSWLR 550 and that of Young J in Re Equiticorp Finance Limited; Ex Parte Brock (No. 2) (1992) 27 NSWLR 391. He concluded that, at least in the case of a person other than a former officer or director of the company in liquidation (that is to say a case of the present kind, there is no legislative intention that s.597B is exhaustive on the matter of expenses. There is still scope for the exercise of inherent jurisdiction. 27 I am of the opinion, however, that the matter of expenses of producing documents in response to an order for production, in conjunction with examination summonses, as in the present case, should not be dealt with in isolation and in advance of production and examination. It will be more sensibly addressed when the court can see what expense, trouble and inconvenience the persons concerned have in fact been put to and can properly assess the general quality of the liquidator's conduct in imposing those burdens. 28 The result of the present applications is that the amended interlocutory process is, in each case, dismissed with costs, but without prejudice, of course, to the applicant's right to seek, in due course, specific confidentiality orders in respect of specific documents produced to the court should the liquidator seek access to them as well as specific orders with respect to expenses incurred. 29 In view of this result, I order that each order for production be varied to require production before the Registrar at 9am on Monday, 13 October 2003.

Damieletto v Khera

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