Excel Finance Corporation Limited (Receiver and Manager Appointed), Re: Worthley v England

REASONS FOR JUDGMENT 1 These reasons should be read with those in proceeding W63 of 2004 (Woolfe v Australian Securities & Investments Commission [2004] FCA 1020) delivered contemporaneously. 2 There are three interlocutory applications before the Court. Each is brought pursuant to r 11.5 of the Federal Court (Corporations) Rules 2000. That rule applies if a person is served with an examination summons. It permits the proposed examinee to apply to the Court for an order discharging the summons. 3 On 4 March 2004 the District Registrar made an order that summonses for examination under s 596A of the Corporations Act 2001 (Cth) be issued to Peter Francis Malone ('Mr Malone') and Paul Dominic Evans ('Mr Evans'). He further ordered that a summons for examination under s 596B of the Corporations Act be issued to David Woolfe ('Mr Woolfe'). Each of the proposed examinees now seeks an order setting aside the summons for examination directed to him.

evidence and submissions for examinees woolfe and evans 4 The case for Mr Woolfe and Mr Evans turns firstly to the affidavit of Mr Barry Waller, a director of the plaintiff Wainter Pty Ltd ('Wainter'), for a description of the purpose of their intended examination. The affidavit states that the proposed examination concerns an agreement entered into between Wainter and New Tel Limited ('New Tel') in about November 2001. The background to the agreement appears from the evidence of Mr Waller as being as follows. Under a sale agreement made in April 2000 and subsequently varied on a number of occasions, Wainter sold its shares in its subsidiary company UDC Group Pty Ltd (later named E. Communications & Networks Ltd, now in liquidation) to Cable & Telecom Ltd ('C&T'). The consideration payable by C&T to Wainter under the sale agreement was cash of $5 million (as to which $1.5 million was payable at settlement and the balance within 12 months of settlement) and 35 million ordinary shares in C&T. 5 Mr Waller's affidavit states that, on 27 November 2001, before New Tel issued a formal bidder statement he had a telephone conversation with Mr Malone of New Tel and Mr Woolfe. The latter gave him to understand he had been a partner of Freehills from 23 June 2000. Mr Waller's evidence was that during the telephone call both Messrs Woolfe and Malone spoke to him. It is said in the affidavit that New Tel required Wainter to forego the debt owing by C&T under the sale agreement (referred to as being $3.6 million, which included $100 000 for interest) or otherwise New Tel would not proceed with the takeover of C&T. It was also said that in addition to the shares in New Tel that Wainter would receive in accordance with the takeover, New Tel would issue 2 million options in New Tel to Wainter if it proceeded with the agreement to forego the $3.6 million debt. A response was sought as a matter of urgency. 6 Later that day Mr Waller telephoned Mr Woolfe and said to him words to the effect that, based on what was said during the earlier telephone call, Wainter would agree to the request. Wainter subsequently assigned the debt to New Tel, and acquired the shares and options in New Tel in consideration of the C&T shares and options owned by Wainter. 7 On 10 December 2002 an administrator was appointed to New Tel. On 13 January 2003 liquidators were appointed as a result of a creditors' voluntary winding up. On 4 March 2003 an official liquidator of New Tel was appointed by a court order. 8 Mr Waller's evidence was that as a result of Wainter's agreement with New Tel, Wainter had suffered a significant loss. He said this was because, but for the agreement, it would have retained a substantial shareholding (and options) in C&T and entitlement to payment of the debt. He said that the combined worth of the interest in C&T and the debt would be in the millions of dollars, perhaps in the region of $60 million. He considered that the prospects of recovering all or any substantial amount of the loss from New Tel were minimal. Therefore he had instructed his solicitors to send a letter of demand to Freehills. 9 Mr Waller also attests that Wainter's primary purpose for seeking to examine Messrs Woolfe and Evans is to assist in recovering the loss Wainter has sustained by virtue of the agreement of 27 November 2001. He said Wainter intends to make use of the oral testimony and access to documents which will derive from the examinations to facilitate commencement of proceedings against Freehills. The essence of the complaint would be that the circumstances of the conversation on the above date and the representations alleged to have been made in it were misleading or deceptive, or likely to be misleading or deceptive. 10 Nevertheless, he also said that the possibility of being able to examine the examinees would benefit other creditors of New Tel. First, he said that this was because the liquidators could obtain access to the information deriving from the examinations which would facilitate investigations into New Tel's financial position and the possibility of action against New Tel directors such as Mr Malone for insolvent trading. Second, he said that if Wainter succeeded against Freehills and recovered all of its loss from Freehills or Freehills' insurers, Wainter would not need to seek recovery out of the liquidation of New Tel or from Mr Malone and his insurers. Third, he said that the end result of recovery by Wainter against Freehills will be to substantially increase the pool of funds available to other creditors of New Tel. 11 Mr Waller's affidavit annexes a letter of demand from the solicitors for Wainter to Freehills dated 28 April 2003 which articulates the claim against Freehills consistently with Mr Waller's evidence. 12 Also attached to the affidavit of Mr Waller is a copy of a letter dated 17 June 2003 from the solicitors for Wainter to the liquidators of New Tel at PriceWaterhouseCoopers. It sought for the liquidators to prepare an expert report as to the solvency or otherwise of New Tel as at 27 November 2001. For Messrs Woolfe and Evans it is submitted that it is difficult to see how that could possibly be in the interests of New Tel in liquidation or other shareholders and creditors to assist Wainter in suing it or Freehills. 13 Mr Waller's affidavit also attaches evidence that on 2 September 2003 the solicitors for Wainter put to the liquidators a revised proposal reflecting a suggestion from the liquidators that an examination under s 596A and s 596B of Corporations Act should be considered. The revised proposal was that the liquidators would examine the applicants, requiring production of documents by them. Additionally, the liquidators would waive any legal professional privilege in relation to Wainter in respect of communications between Freehills, Messrs Evans or Woolfe, or New Tel. Further it was proposed that the liquidators would engage Wainter's solicitors to conduct the examination and allow them to retain the transcript. Next, the liquidators were to provide a report to Wainter as to New Tel's solvency and financial prospects as at 27 November 2001. 14 By letter dated 14 October 2003 one of the liquidators replied 'after giving the matter considerable thought, I advise that unfortunately I am unable to assist you'. Although the solicitors for Wainter by letter of the same date requested reasons for this response, there is no evidence such were forthcoming. 15 The case for Messrs Woolfe and Evans also relies on an affidavit of Mr Mark Blundell sworn on 12 February 2004. Mr Blundell is a solicitor in the firm of solicitors for Wainter. It attaches a memorandum of a telephone conversation between Mr Blundell and Mr Priest (a director of the Sydney office of PriceWaterhouseCoopers), which is said to have occurred on 22 August 2003. The note recorded that Mr Priest considered that by November 2001 it may be that New Tel was getting close to 'hitting the wall'. It was recorded that he said it was not beyond the realms of possibility that New Tel was insolvent at that time but that may be 'pushing it a bit'. It was also recorded that his preliminary view was that documentary evidence of indication of insolvency dated back to November 2001 was unlikely to be there. 16 Mr Waller's affidavit also annexed a copy of a letter from Wainter's solicitors dated 5 January 2004 to Mr Malone being a letter of demand to him in respect of what was said to be a misleading or deceptive conduct. Also annexed is a copy of a letter dated 6 January 2004 from Wainter's solicitors to the Complaints Management at ASIC seeking the approval of ASIC to examine persons concerning the examinable affairs of New Tel; that is, to authorise Wainter to be an 'eligible applicant' for the purposes of making the necessary application pursuant to s 596A and s 596B of the Corporations Act. This letter is more fully described in the reasons given in proceeding W63 of 2004 under the heading 'Request and Supporting Documents'. 17 For the examinees Woolfe and Evans, it was said that par 6 of that letter confirmed that the sole purpose of the proposed examinations was to elicit evidence in relation to the causes of action alleged to have arisen out of the conversation on 27 November 2001. In relation to par 7, it was submitted that it shows that this matter is not an instance where a creditor has to step in to conduct examinations in relation to examinable affairs of a company because a liquidator is unwilling or unable to conduct those examinations. It is said that on this evidence it is illusory for it to be contended that the examinations of Messrs Woolfe and Evans would be or could be of interest to the contributories and other creditors. 18 In relation to par 13 of the letter, it is submitted that if an action is brought against Freehills only, Freehills would necessarily join New Tel and seek contribution or indemnity from it. Therefore, it is submitted, it cannot seriously be contended that there will be a benefit to New Tel (or its shareholders and creditors) in an action being able to proceed successfully against Freehills. 19 Based on this evidence it is submitted for the examinees, Messrs Woolfe and Evans, that the predominant purpose of Wainter's proposed examination is furtherance of the foreshadowed action against Freehills. It is said that Wainter's purpose is clearly to obtain a forensic advantage in relation to its proposed action against Freehills, and to obtain pre-trial discovery and depositions from a potential defendant. Therefore, it is said an abuse of process arises which the Court should control by discharging each of the summonses. 20 In relation to the notion of an advantage to New Tel being present in an action against Freehills, it is submitted for the same two examinees that two advantages are contended for by Wainter. The first is that if Wainter succeeds in its action against Freehills it will not or would not proceed against New Tel. It is said that this is misconceived because Wainter has given no binding undertaking not to proceed against New Tel. Additionally and consistently with a submission made earlier above, it is said to be obvious that if the action was brought against Freehills, it would necessarily seek to join New Tel seeking indemnity and contribution. The second way the advantage or benefit is put is that an examination as to the solvency of New Tel as at 27 November 2001 would assist the liquidators in respect of claims of possible insolvent trading by directors. As to this second contention, the examinees Woolfe and Evans say that Wainter's sole focus was on 27 November 2001 when it may be that other dates could be of greater interest to the liquidators, and thereby creditors and contributories as a whole. Further, there was nothing to suggest Mr Evans could be of any assistance on this issue. Additionally, the evidence of alleged insolvency at the date claimed was, in any event, said to be 'rather thin'. 21 Additionally, it is submitted for those two examinees that it is apparent from the evidence of the attitude of the liquidators that they are not interested in the examinations proposed by Wainter and have refused to assist Wainter in that regard. It is submitted that this is consistent with what was said by Mason CJ in Hamilton v Oades (1989) 166 CLR 486 at 497, which should be understood as indicating that great weight must be given to the fact that Wainter's proposed examination was not considered by the liquidators to properly advance the interests of New Tel creditors and contributories. 22 Finally, it is submitted that as a matter of law if the predominant purpose of an eligible applicant seeking to conduct an examination is not a proper one, an abuse of process occurs and the examination should be stayed. Reliance is placed principally upon Re Excel Finance Corporation Limited (Receiver and Manager Appointed): Worthley v England (1994) 52 FCR 69 and other authorities, to which reference will be made below. 23 The application to discharge the examination summonses is also supported by an affidavit of Mr Woolfe in which he denies that either Freehills or himself is indebted to Wainter in the amount claimed and that he resigned from Freehills on 26 September 2003 to take up a position with a new employer. 24 Mr Woolfe asserts that the summons is oppressive in its application and scope. He states that he was a partner of Freehills. He was appointed a director of New Tel on 27 September 1996 and resigned on 16 August 2001. He states that he performed no legal work for New Tel from before 1996 to after 2001 and has no familiarity with the great majority of files held by Freehills relating to New Tel. He said that the job of gathering, sorting and making available New Tel related documents held by Freehills is burdensome because each must be considered in respect of both relevance and privilege.