(2005) 145 FCR 176
- Wily Re LED (South Coast) Pty Ltd [2009] NSWSC 946
Source
Original judgment source is linked above.
Catchwords
Evans v Wainter Pty Ltd [2005] FCAFC 114(2005) 145 FCR 176
- Wily Re LED (South Coast) Pty Ltd [2009] NSWSC 946
Judgment (3 paragraphs)
[1]
Background and affidavit evidence
This judgment deals only with the question whether access should be granted to the liquidator's affidavit in support of the applications for the examination summonses. In those circumstances, although there was a degree of attention in submissions to the merits of the application to set aside the orders for production (as distinct from the examinations), it is preferable that I say as little about that as possible, against the contingency that I may in future need to determine that application. I will therefore not address the contents of the affidavit evidence other than to the extent necessary to deal with the application for access to the liquidator's affidavit.
I should first set out the background facts to the application, expanding somewhat on my oral ex tempore judgment, and drawing upon the affidavits to which I refer below and the previous summary of that background in Re Iris Diversified Property Pty Ltd (in liq) [2018] NSWSC 834. The First Applicant, Mr Wassim Arnaout, was or is the sole director and secretary of Iris Diversified Property Pty Ltd (in liq) ("IDP") and two shares in IDP were or are owned by Iris Diversified Investments Pty Ltd ("IDI"). The Owners - Strata Plan 84741 ("Owners Corporation"), which is the body corporate of a block of apartments, commenced proceedings against, inter alia, IDP in August 2014. Prior to delivery of judgment against IDP in those proceedings, it sold a substantial property, which it appears was held in its capacity as trustee. By reason of judgments delivered in favour of the Owners Corporation on 29 August 2017 and 15 September 2017, the Owners Corporation is now a substantial creditor of IDP. Following the judgments against it, IDP was placed in liquidation on 11 October 2017 and another person was appointed as its liquidator. By orders made on 6 June 2018, the Court ordered that a resolution that that person be removed as liquidator of IDP put at a previous creditors' meeting was taken to have been passed at that meeting and that the present liquidators be appointed as joint liquidators of IDP.
Turning now to the evidence on which the Applicants rely, in his affidavit dated 23 September 2019, Mr Nielsen, who is a solicitor acting for the Applicants, identifies the corporate structure of what is described as the "Iris Group" comprising IDP and a number of other entities. Mr Nielsen also refers to the role performed by the Second Applicant, Mr Hawkins, previously as a solicitor with a firm of solicitors and subsequently as general counsel for the Iris Group from July 2017. Mr Nielsen also refers to proceedings brought by the Owners Corporation against, inter alia, IDP, in which judgment adverse to IDP was delivered shortly before IDP was placed in liquidation. Mr Nielsen also refers to a commonplace provision in a trust deed for the trust, for which IDP was trustee, which provides for the trustee to cease to act as trustee on its liquidation, and he also refers to the appointment of a successor trustee to that trust.
Mr Nielsen also refers to circumstances in which the liquidators exercised their statutory power to require production of files held by a firm of solicitors that previously acted for IDP (by a predecessor firm) (he contends, in its capacity as trustee of the trust) and refers to a dispute which subsequently arose with the Applicants in respect of the scope of the documents produced by that firm. Some attention to that dispute was given in the course of submissions, although it seems to me that little ultimately turns upon it. The evidence indicates that documents produced by that firm relating to a particular matter were inspected by the liquidators, their solicitors (who also acted for the Owners Corporation) and a representative of the Owners Corporation to whom they were made available and a "standstill" was then agreed between the parties and has been in place for several months, although there may be a dispute as to its present status. The circumstances of access to such documents can be addressed in dealing with the substantive application, if necessary. It is plain that dispute was drawn to the Registrar's attention before the examination summonses and orders for production were issued, as I will note below, and its resolution would not be advanced by allowing access to the liquidator's affidavit in support of the examinations and orders for production.
Mr Nielsen also refers to the prospect that the orders for production will require production of documents as to which claims for legal professional privilege exist in respect of either Mr Arnaout personally or other companies within the Iris Group. No doubt that is a possibility, although the extent to which such claims are available was not established by the evidence, and will depend on the extent to which Mr Arnaout personally or those other companies retained the relevant firm or its predecessor in respect of relevant matters over the period, and whether the nature of the work done was such as to generate documents that were capable of supporting a claim for legal professional privilege. In his second affidavit dated 2 October 2019, Mr Nielsen refers to a second Interlocutory Process which is not in issue in this hearing and to correspondence between the parties which provides background to the application.
By a further affidavit dated 11 October 2019, Mr Munstermann, who is also a solicitor for the Applicants, referred to the involvement of one of the Applicants, Mr Brendan Jones, in matters which may be the subject of examination and to the time at which the applications were brought. That affidavit was, I apprehend, read in anticipation of the possibility that an issue might be taken as to the fact that the applications to set aside the examination summonses were not brought within the time specified in r 11.5(2) of the Corporations Rules and can only be pursued if the Court extends that time. That point was not taken by the liquidators in respect of this aspect of the application and I need not address it in this judgment, although it will no doubt be relevant for the Applicants' foreshadowed application for an extension of time to set aside the examination summonses.
The liquidators in turn rely on an affidavit of their solicitor, Mr Michael O'Neill (who, as I noted above, also acts for the Owners Corporation), which also addresses the background to the application, identifies the subject matter of the liquidators' investigations and matters that were disclosed in a previous report to creditors, including dealings with property held by IDP as trustee of the trust prior to the liquidators' appointment, and to the liquidators' continuing investigation of those matters. Mr O'Neill also refers to the liquidators' investigation as to the circumstances of the sale of a significant property by IDP (to which I referred above) and whether that sale was undertaken at under-value. Mr O'Neill refers to the circumstances in which a notice was issued to the solicitors that previously acted for IDP seeking production of documents. Mr O'Neill also addressed the steps then taken to access the documents that were produced, which could have given rise to difficulties but may not in fact have done so in the relevant circumstances, and to the standstill agreement which was subsequently agreed between the parties in respect of the documents produced, to which I also referred above.
Mr O'Neill also refers to the circumstances of the application for examination orders and to the liquidator's affidavit in support of that application and to correspondence between the Applicants' solicitors and Mr O'Neill in respect of what had been disclosed there to the Registrar at the time the examination orders were sought, and confirms the truth and correctness of the information provided in the letter to the Applicants' solicitors, to which I will shortly refer. Mr Clarke fairly accepts that no challenge was or could be put to the correctness of Mr O'Neill's evidence as to what was disclosed to the Registrar where no application was made for leave to cross-examine him and he was not cross-examined as to that matter. Mr Clarke instead raised the possibility that there may be matters of context or other matters which might have affected that disclosure, accepting the correctness of Mr O'Neill's evidence as to what in fact was disclosed. That is, with respect, no more than speculation. Mr O'Neill also refers to the extensive disclosure made, when he appeared before the Corporations Registrar to seek the issue of the examination summonses and document production orders, as to the issues in respect of legal professional privilege. That disclosure included specific reference to the fact that there was a dispute as to access to documents by IDP in its capacity as former trustee of the trust, where the replacement trustee claimed that it, rather than IDP, was now entitled to make any determination as to that legal professional privilege.
I have referred above to correspondence between the parties which dealt with the question of disclosure to the Registrar. By letter dated 30 September 2019, the solicitors acting for the Applicants had identified a number of matters which they contended if they had not been disclosed to the Registrar would have the result that the examination summonses should be set aside (Ex A2, 147). By Mr O'Neill's letter dated 13 October 2019 (Ex R1, 150), he addressed each of those matters and indicated that all but one of them had been disclosed and the other had not been disclosed because it was not known by the liquidators prior to receipt of the letter from the Applicants' solicitors. As I noted above, that was confirmed by affidavit and its correctness was not challenged.
[2]
Submissions and determination
With that background, I turn to the parties' submissions in respect of the application for access to the liquidator's affidavit in support of the orders for examination. Those submissions were subtle and complicated, although many of them turned upon matters that will ultimately be sought to be raised in respect of the application to set aside the orders for production, as distinct from the examination summonses.
Mr Clarke submit, and I accept, that the Applicants would have standing to seek to set aside the examination summonses addressed to them, although I have noted above the absence of identification of any basis to do so, other than in respect of one of them. Mr Clarke also submits and I accept that, where orders for production were made ex parte the orders can be set aside by the Court. Mr Clarke also refers to the principles I have noted above as to when the Court may order that an affidavit filed in support of an application for examination be made available for inspection. Mr Clarke also submits that, where it was anticipated that questions in respect of client legal professional privilege would arise, an order for production should generally not be made ex parte or should make express exception for documents the subject of legal professional privilege: Meteyard v Love above. It appears that that proposition will be relied upon to seek to set aside the orders for production, when that application is heard, although additional complexity arises here because, so far as IDP sought production of client files, they were in part files for which it was the client.
Mr Clarke draws attention to what he describes as a complex question as to whether, in these circumstances, IDP as the former trustee has the ability to claim legal professional privilege or the current trustee has that privilege, and, to the extent that IDP has the ability to claim that privilege, whether it is to be claimed in the interests of the trust. That turns upon issues addressed by Brereton J in Hancock v Rinehart (Trust documents) [2018] NSWSC 1684 and, in a further decision delivered after I had heard this application and delivered my oral ex tempore judgment, by Ward CJ in Eq in Hancock v Rinehart [2019] NSWSC 1451. While that question is complex, it would also be commonplace in the insolvency of corporate trustees of trading trusts, given the extent to which trading trusts are now used in business activities and the ubiquitous provision in trust deeds which provides for vacation of the trustee's office on the appointment of a liquidator. That question would arise in every case in which the liquidator of a corporate trustee sought production of documents relating to the trust's affairs where its office had been vacated by a vacation provision. In this context, it may raise the further question, which did not arise in the Hancock v Rinehart decisions, whether the liquidators could properly be appointed as receivers of the trust assets generally or the files for which it was the client in particular, and how that possibility would impact on the powers of the former and present trustee and the exercise of the Court's powers.
Mr Clarke also raises the possibility that there may have been joint privilege held by other parties, but that presently has little or no evidentiary support and is raised as no more than a possibility. So far as documents produced may extend to other companies within the Iris Group, there is little evidence as to the extent of them or whether they were of such a nature that a substantial volume of legally professionally privileged material would be produced, although it is no doubt a possibility that, given the scope of the orders for production, some such material would be produced. Mr Clarke also referred, as I had noted above, to a number of other possibilities, including, that there may be joint privilege with a beneficiary. Mr Clarke seeks to advance that matter as a proposition of law, although it is not entirely clear how such a proposition of law could arise independently of any underlying facts. He also refers to the possibility of joint advice with other persons, such as the director in respect of insolvency, and I have referred to that issue above.
Mr Clarke also raises the possibility of non-disclosure to the Registrar in this context, although that proposition has at least two factual difficulties. The first is that, as I noted above, Mr O'Neill s evidence as to what was in fact disclosed to the Registrar, including the fact of the dispute as to the claim for privilege and whether the former trustee or the current trustee could make it, was not challenged. The second is that, so far as Mr Clarke seeks to hypothesise other matters which might have qualified what was in fact disclosed, there is no evidence to support the hypothesis. So far as Mr Clarke emphasises the complexity of the legal issues which might arise, and putting aside their commonplace character, Mr Glasson responds that, once the relevant factual matters were disclosed to the Registrar, it was not necessary for the liquidators then to hypothesise the range of legal arguments that might be put in respect of them. It seems to me that there is substantial force in that proposition.
It seems to me that ultimately this application can be determined on a relatively narrow basis. First, Mr Clarke's detailed and subtle submissions were largely not directed to a challenge to the examination summonses, as distinct from the orders for production. The highest to which that challenge rose was the speculation to which I have referred above, that the liquidators might, in an exercise of irrationality, seek to examine one examinee at length as to matters subject to legal professional privilege, notwithstanding that the Registrar would likely reject such questions. To the extent that issues are raised in respect of the orders for production, the identification of those issues will not be advanced by access to the affidavit in support of the examination summonses. There are, no doubt, issues that remain open, most importantly issues as to the extent of documents subject to legal professional privilege which might fall within the scope of the notice to produce, but those matters are largely within the Applicants' knowledge rather than in the liquidators' knowledge.
To the extent that a single affidavit was relied upon in respect of the examination summonses and the orders for production, Mr Clarke also submitted that there is no statutory protection of that part of the affidavit that supports the orders for production. It seems to me that Mr Glasson was correct in responding that a single affidavit, that dealt with both the issue of the examination summonses and the orders for production is protected from disclosure by s 596C of the Act, unless the Court otherwise orders. It may be that, had separate affidavits been relied upon, then the Applicants could have obtained access to the affidavit in support of the orders for production, but there is no suggestion that is the case here and it will often not be the case. Where a single affidavit is relied on, then access to it is through s 596C of the Act and r 11.3(7) of the Corporations Rules to which I have referred above and turns upon the existence of an arguable basis to set aside the examination summonses, but also on the need for access to do so. As I have noted above, there is here limited identification of any basis to set aside the examination summonses as distinct from the orders for production, and no reason to think that access to that affidavit in support is necessary to advance that basis. While I gave consideration to whether an order should be made permitting access to that affidavit to the extent that it dealt separately with the basis for the orders for production, as distinct from the examination summonses, I have ultimately concluded that the matters I have referred to provide no basis for taking that step even if it were possible to do so.
For these reasons, paragraph 6 of the Amended Interlocutory Process filed 14 October 2019 should be dismissed. The Applicants must pay the liquidators' costs of and incidental to that paragraph of the Amended Interlocutory Process, including the costs of the hearing today. I will hear the parties as to the directions that should be made to prepare the balance of the application for hearing and as to when the balance of that application should be listed.
[3]
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Decision last updated: 29 October 2019
The relevant legal principles are well established and there appeared to be little contest between the parties in respect of them. Section 596A of the Corporations Act 2001 (Cth) provides that the Court must summon for examination about a corporation's examinable affairs a person who is, relevantly, an officer of the corporation in specified circumstances. Section 596B provides for discretionary examinations in other circumstances. The purpose and scope of liquidator's examinations and the circumstances in which they may be set aside was summarised Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 at [252] where Lander J (Ryan and Crennan JJ concurring) observed that:
"1. The power given to the court to summon a person for examination is a coercive power.
2. The purpose of the power is to be gleaned from the legislation.
3. The following legitimate purposes emerge:
3.1 First, an examination is designed to serve the purpose of enabling an eligible applicant to gather information to assist the eligible applicant in the administration of the corporation.
3.2 Second, it assists the corporation's administrators to identify the corporation's assets, both tangible and intangible. It also allows the corporation's liabilities to be identified.
3.3 Third, the purpose is to protect the interests of the corporation's creditors.
3.4 Fourth, it serves the purpose of enabling evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation.
3.5 Fifth, it assists in the regulation of corporations by providing a public forum for the examination of examinable officers of corporations.
4. If an eligible applicant applies for an order for the examination of a person for a purpose unconnected with the purposes authorised by the legislation that will be an abuse of process and the order, if obtained, will be set aside.
5. The procedure may not be used to allow a party to obtain a forensic advantage and, if it is, any order obtained will be set aside.
6. The procedure may not be used as a dress rehearsal for the cross-examination of a person in a pending or subsequent action. However, it is not improper to seek an order of the Court to summon a person for examination whilst litigation is pending against that person or entities connected with that person.
7. The question whether in any particular case the applicant has used the procedure abusively will depend upon the applicant's purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose.
8. It will be an offensive purpose if the application cannot be characterised as being for the benefit of the corporation, its contributories or creditors.
9. A creditor may, if first authorised by ASIC, apply to the Court for an order to summon for examination a person for the purpose of obtaining information in relation to a debt owed to the creditor if such an examination would be in the interests of the corporation or its creditors as a whole.
10. A creditor may not use the procedure for the purpose of obtaining a forensic advantage which would not have been available to the creditor if the corporation had not gone into administration."
That analysis was adopted by Barrett J in Wily Re LED (South Coast) Pty Ltd [2009] NSWSC 946; (2009) 76 NSWLR 428 at [36] and by Gleeson JA in Re Cardinal Group Pty Ltd (in liq) [2018] NSWSC 748 at [15]; see also Re Ji Woo International Education Centre Pty Ltd [2019] NSWSC 93 at [16].
Section 596C of the Act provides that a person who applies under section 596B for a discretionary examination must file an affidavit that supports the application and complies with the rules and that the affidavit is not available for inspection except so far as the Court orders. Rule 11.3(7) of the Corporations Rules relevantly provides that, unless the Court otherwise orders, an affidavit in support of an application for an examination summons is not available for inspection by any person. That rule, as the Applicants recognise, contemplates that the Court may otherwise order in an appropriate case. The circumstances in which such an order may be made are established by authority, and both parties referred to the relevant case law. In broad summary, the Court may order that such an affidavit may be made available for examination where there is some evidence that the examinee has an arguable case to set aside the examination and the Court would not be able to fairly and properly determine that case, if part of the relevant evidence was not available: see the cases cited in Austin & Black's Annotations to the Corporations Act at [5.596A]. Mr Clarke, who appears with Ms Beechey for the Applicants, refers to the observations of the Full Court of the Federal Court in Re Excel Finance Corp Limited (rec and mgr apptd) (1994) 52 FCR 69 at 93-94, that inspection of a liquidator's affidavit should prima facie be permitted where the Court is of the opinion that it is unable to fairly and properly determine the application if part of the evidence is held from an applicant. The Court there emphasised, however, that first there must be material before the Court from which it appears that an applicant has an arguable case to which the material is relevant before the discretion should be exercised to grant access to the affidavit. Mr Clarke also refers to the oft cited observations of Basten JA in Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 at [141], as to those matters and to the subsequent decisions which have followed that decision. Mr Glasson, who appears for the liquidators, in turn rightly emphasises that the question is not only whether there is an arguable case to set aside the examination summons, as distinct from any orders for production, but also whether that case could not be pursued or fairly pursued or determined without access to the affidavit.
It is worth pausing here to note one oddity of the application, which will become relevant later in dealing with its detail. It appears that the liquidators relied on a single affidavit in respect of both examination summonses and orders for production issued by the Registrar. The Applicants' submissions are primarily directed to criticising the scope of the orders for production on bases to which I will refer below. The only basis advanced by the Applicants to attack the examination summonses was a somewhat strained hypothesis that, if the orders for production called for production of a significant number of documents that were subject to legal professional privilege, the liquidators may seek to examine one of the examinees as to those documents despite that privilege. One obvious difficulty with that hypothesis is the unlikelihood that the liquidators would take a course that would be both pointless and perverse. If the liquidators took that course, the Registrar would likely disallow any questions which intruded into legal professional privilege. That is an oddity in that application, as I described it above, because the basis on which the Applicants would be granted leave to inspect the liquidator's affidavit in support of the examination is an arguable case to set aside the examinations and that the Court would not be able to fairly and properly determine that case if part of the relevant evidence was not available, but almost all of their submissions were directed to a different question, namely the prospect that the orders for production would be set aside or restricted. I will return to that question below.