HP Mercantile Pty Limited v Crouch; in the matter of Tumut River Orchard Management Limited

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website.

GENERAL DIVISION NSD 1836 of 2008

IN THE MATTER OF TUMUT RIVER ORCHARD MANAGEMENT LIMITED (IN LIQUIDATION) ACN 003 501 611 BETWEEN: NICHOLAS DAVID JAMES CROUCH IN HIS CAPACITY AS LIQUIDATOR OF TUMUT RIVER ORCHARD MANAGEMENT LTD (IN LIQUIDATION) ACN 003 501 611

NICHOLAS DAVID JAMES CROUCH IN HIS CAPACITY AS LIQUIDATOR OF TUMUT RIVER ORCHARD MANAGEMENT LTD (IN LIQUIDATION) ACN 003 501 611

AND: NICHOLAS DAVID JAMES CROUCH IN HIS CAPACITY AS LIQUIDATOR OF TUMUT RIVER ORCHARD MANAGEMENT LTD (IN LIQUIDATION) ACN 003 501 611

REASONS FOR JUDGMENT 1 The matter presently before the Court is a Further Amended Interlocutory Process filed 30 November 2009 in which three out of the four applicants named therein (George Roy William McDonald, John Campbell Myers and Ross Chapman) have sought orders discharging examination summons issued pursuant to s 596B of the Corporations Act 2001 (Cth) ('the Act') which have been served upon them or, alternatively, orders striking out different parts of the respective summons. In my opinion none of the summons should be discharged. 2 Division 1 of Part 5.9 of the Act made provision for the examination of persons about corporations. Section 596A dealt with 'mandatory' examinations and s 596B dealt with 'discretionary' examinations. 3 Whilst each of the summons claims to have been issued under 'section 596A and or section 596B' it would appear from the evidence presently before the Court that the only applicable section was s 596B, which relevantly provided as follows: '596B(1) 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 of misconduct in relation to the corporation; or (ii) may be able to give information about examinable affairs of the corporation. …'

4 'Misconduct' was defined in s 9 of the Act to include 'fraud, negligence, default, breach of trust and breach of duty' and 'examinable affairs', in relation to a corporation, was defined to mean: '(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).'

5 For the purposes of the definition of 'examinable affairs' in s 9, s 53 relevantly provided: '53 … 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; and … (c) the internal management and proceedings of the body; and …'

6 It is clear that Mr Crouch, the plaintiff/respondent, was an eligible applicant. 7 Mr Crouch's application for the issue of the examination summons in question was made in accordance with rule 11.3 of the Federal Court (Corporations) Rules 2000 (Cth) ('the Rules') which required the application to be supported by an affidavit stating the facts in support of the process. In accordance with rule 11.3(7) an affidavit in support of an application for an examination summons is not to be made available for inspection by any person unless the Court otherwise orders. As it transpires, Mr Crouch has made copies of his affidavits sworn 25 November 2008, 4 December 2008 and 28 October 2009 available for inspection by counsel for Messrs. McDonald, Myers and Chapman on the undertaking of such counsel not to disclose the contents of the affidavits or make inspection of them available to any other person without the leave of the Court to do so. 8 Section 596D(2) of the Act provided that a person to whom an examination summons was directed may be required 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.'

9 Section 597(4) of the Act provided for examinations to be held in public except to such extent (if any) as the Court may consider that, by reason of special circumstances, it was desirable to hold them in private. 10 Section 597(5B) provided: '597(5B) The Court may put, or allow to be put, to a person being examined such questions about the corporation or any of its examinable affairs as the Court thinks appropriate.'

11 In this context s 596F(1) provided: '596F(1) Subject to section 597, the Court may at any time give one or more of the following: (a) a direction about the matters to be inquired into at an examination …'

12 Perhaps more importantly, for present purposes, s 597B of the Act relevantly provided: '597B Where the Court is satisfied that a summons to a person under section … 596B … was obtained without reasonable cause, the Court may order some or all of the costs incurred by the person because of the summons … to be paid by: (a) in any case - the applicant for the summons …; or (b) in the case of a summons - any person who took part in the examination.'

13 In Hamilton v Oades (1989) 166 CLR 486 the High Court considered an application by an examinee to restrict questions that were asked of him to matters that were not the subject of pending criminal proceedings against him. The Deputy Registrar in the New South Wales Supreme Court declined to so restrict the examination. Review of the Deputy Registrar's decision was sought whereupon McLelland J, as his Honour then was, dismissed the examinee's application for an order restricting the examination. That decision was reversed on appeal to the Court of Appeal but restored following an appeal to the High Court. Mason CJ said at 497-498: '… In light of the purpose of the section, great weight must be given to the views of the liquidator when the court considers whether to order an examination … The same approach must be taken by the court when it makes orders or gives directions in relation to an examination in progress. … The very purpose of the section is to create a system of discovery, which may cause defences to be disclosed, for the purpose of bringing charges. The section gives to the liquidator rights not possessed by an ordinary litigant … . In these circumstances it must be accepted that the section applies equally to proceedings which the liquidator "might be able to bring, proceedings he contemplates bringing, proceedings he has decided to bring, and proceedings he has already brought" … To adopt the language of Kitto J in Mortimer v Brown[(1970) 122 CLR 493 at 496], to hold otherwise "would render the provision relatively valueless in the very cases which call most loudly for investigation".

14 Mason CJ cited with approval the judgment of Street J, as his Honour then was, in Re Hugh J Roberts Pty Ltd (in liq) and the Companies Act (1970) 91 WN (NSW) 537 ('Re Hugh J Roberts Pty Ltd'). In that case his Honour said at 541-542: 'A liquidator needs information concerning his company just as much in connection with current or contemplated litigation as in connection with other aspects of its affairs. …. In my judgment it is immaterial in basic substance whether the private examination is sought to be used by a liquidator to gather information in connection with proceedings he believes he might be able to bring, proceedings he contemplates bringing, proceedings he has decided to bring, and proceedings he has already brought. There is no presently relevant distinction in substance between gathering information referable to commencing proceedings and gathering information referable to continuing proceedings. There may be more risk of or opportunity for the examination being vexatious or oppressive after proceedings have been commenced …. Also an abuse of process may be more readily exposed once proceedings are already on foot. But this is surely not to the point, as vexation or oppression will not be tolerated no matter when the examination is held. A liquidator need not be diffident in using a private examination for its ordinary and legitimate purpose in the gathering of information. But he must not abuse this process. For instance an attempt, where litigation is either contemplated or commenced, to summon the prospective or existing defendant's probable witnesses and examine them simply for the purpose of destroying their credit would exceed the legitimate use of the process. Beyond stating this extreme instance, I consider it unsafe to generalize - very often the gathering of information quite properly involves testing the reliability or credit of the examinee from whom the information is being obtained. It is not without significance that the Master or Deputy Master in Equity presides over the examination. The type of examination which could be vexatious, oppressive or harassing will not be difficult to recognize. If counsel is appearing for the party being examined, he will no doubt take objection where necessary. And if the examinee is unrepresented, one can be confident that the Master himself would intervene were a situation to develop where the examination departed into a field which is abusive of the process of the court. I reiterate that the mere fact that the subject matter of the examination is directly concerned with issues currently being litigated or matters incidental to such issues will not of itself render the proceedings abusive.'

15 If the coercive powers of s 596B were to be invoked for a purpose foreign to the purposes for which those powers were conferred, there would be an abuse of process (see per Hayne J, then of the Supreme Court of Victoria, in New Zealand Steel (Aust) Pty Ltd v Burton (1994) 13 ACSR 610 at 616). 16 Provisions such as s 596B have a long history. In practice, in many cases the applicant for an examination order is the liquidator of a company which is being wound up. Liquidators often experience difficulty in obtaining necessary information concerning the affairs of the company, and they may not be able to depend upon former officers of the company to assist them in that regard. Indeed, they may wish to assert rights of the company against such former officers (see per Gleeson CJ, then of the Supreme Court of New South Wales, in Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 at 517). 17 The scope and operation of s 596B of the Act is such that it will inevitably intrude on private and commercial interests of third parties and require the disclosure of information which would, absent such a provision, be confidential. Despite those consequences, the provision must be given full effect, in accordance with its terms, reflecting a choice made by the Parliament as to the necessary balance between such private and commercial interests and the public interest in the orderly administration of companies under the control of external managers (per Basten JA, Beazley JA agreeing, in Meteyard v Love (2005) 65 NSWLR 36 ('Meteyard') at [136]). 18 The statutory definition of 'examinable affairs' is so wide that it would be unwise to assume that matters of future intention are necessarily beyond its scope (per Santow JA in Meteyard at [10]). 19 It would be equally unwise to assume that information already known to a liquidator should be excluded from questioning in respect of examinable affairs (per Santow JA in Meteyard at [11] and Basten JA at [139], Beazley JA agreeing). 20 An examination directed at testing a liquidator's preliminary view that claims in current litigation have good prospects of success in not an objectionable purpose (per Barrett J in O'Brien v Wily (2009) 74 ACSR 145 ('Wily') at [37]-[38]). 21 Where the predominant purpose of a liquidator in conducting examinations is to put himself into a position from which he can make a final decision whether or not to pursue litigation is permissible (see per Barrett J in Wily at [45]). 22 The approach taken by Courts to prevent abuses of process in inter-partes litigation may not necessarily apply in all circumstances to summons issued pursuant to the investigative powers conferred upon, amongst others, a liquidator, as an eligible applicant in relation to a corporation's examinable affairs. However, what has been said in relation to abuse of process in the context of inter-partes litigation will, of necessity, be relevant to determining questions of abuse of process in respect of the issue and use of examination summons. 23 In Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 260 ALR 34 at [27]-[29] French CJ, Gummow, Hayne and Crennan JJ said in respect of the prevention of abuses of process: '[27] An early statement of the power of any court to prevent abuse of its processes is found in an 1841 case, Cocker v Tempest: The power of each court over its own process is unlimited; it is a power incident to all courts, inferior as well as superior; were it not so, the court would be obliged to sit still and see its own process abused for the purpose of injustice. That statement foreshadowed the contemporary approach in the United Kingdom and Australia which takes no narrow view of what can constitute "abuse of process". Nevertheless, certain categories of conduct attracting the intervention of the courts emerged in the 19th and 20th centuries and included: (a) proceedings which involve a deception on the court, or are fictitious or constitute a mere sham; (b) proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way; (c) proceedings which are manifestly groundless or without foundation or which serve no useful purpose; (d) multiple or successive proceedings which cause or are likely to cause improper vexation or oppression. [28] The term "abuse of process", as used in Australia today, is not limited by the categories mentioned above or those which constitute the tort. It has been said repeatedly in the judgments of this court that the categories of abuse of process are not closed. In Walton the majority adopted the observation in Hunter that courts have an inherent power to prevent misuse of their procedures in a way which, although not inconsistent with the literal application of procedural rules of court, would nevertheless be "manifestly unfair to a party to litigation … or would otherwise bring the administration of justice into disrepute among right-thinking people". This does not mean that abuse of process is a term at large or without meaning. Nor does it mean that any conduct of a party or non-party in relation to judicial proceedings is an abuse of process if it can be characterised as in some sense unfair to a party. It is clear, however, that abuse of process extends to proceedings that are "seriously and unfairly burdensome, prejudicial or damaging" or "productive of serious and unjustified trouble and harassment". [29] In Campbells, Gummow, Hayne and Crennan JJ (with whom Gleeson CJ agreed in this respect) declined to formulate an overarching rule of public policy that would, in effect, bar the prosecution of an action involving an agreement to provide money to a party to institute or prosecute the litigation in return for a share of the proceeds of the litigation. Nor would they accept that there should be a rule which would bar the prosecution of some actions according to whether the agreement met some standards relating to the degree of control or the amount of the reward the funder might receive under the agreement. It was not shown that apprehensions that the funder might improperly interfere with the conduct of the proceedings could not sufficiently be addressed by "existing doctrines of abuse of process and other procedural and substantive elements of the court's processes".' (footnotes omitted)

In Wily Barrett J at [42] opined that it was a clearly impermissible purpose for a liquidator to conduct a dress rehearsal for cross-examination or to seek to assemble material in order to attack a potential witness's credit. No such impermissible purpose is apparent in the circumstances of this case. Furthermore, one must not overlook Street J's observation in Re Hugh J Roberts Pty Ltd that testing the reliability of an examinee from who information is being obtained can be a legitimate use of the examination power.

Background facts 24 On 5 May 1988 Tumut River Orchard Management Limited, previously known as Itixalia Pty Limited, Tumut River Orchard Estates Pty Limited, Troe Management Pty Limited, Tumut River Orchard Management Limited and Horticultural Prospectuses Limited, was registered with the Australian Company Number 003 501 611 ('Tumut'). 25 It would appear that Tumut set up a number of tax avoidance schemes between about 1991 and 1997. The various schemes were horticultural schemes of which Tumut was the promoter. To participate in the schemes taxpayers, referred to as 'investors' needed access to funds which they could use in conjunction with their own initial capital contributions to enable them to acquire allotments and then become 'growers' in respect of the fruit produced from orchards established on their several 'allotments'. Tumut made advances of funds to 'investors' as part of the various schemes. 26 HP Mercantile Pty Limited, the first applicant named in the Further Amended Interlocutory Process, claims that the resultant debts owed by the several taxpayers to Tumut in respect of the various schemes were duly assigned to three companies, namely Core Finance Pty Limited, Symsung Pty Limited and Treetop Projects Limited, that those companies in turn assigned the debts to Merilbah Investments Pty Limited (formerly known as Bejemi Pty Limited and Arnott-Smith Holdings Pty Limited) ('Merilbah') which, in turn, assigned them to HP Mercantile Pty Limited. 27 Mr Crouch's interest in examining Messrs McDonald, Myers and Chapman is to ascertain the nature and extent of the indebtedness of the several taxpayer/investor/growers to Tumut and to investigate the validity of the assignments of the debts so owed to Core Finance Pty Limited, Symsung Pty Limited and Treetop Projects Limited. As he has said: 'If the assignments were not valid, ownership of the loan book may revert to me as liquidator.'

28 The various assignments were said to have been effected between about 1998 and 2001. 29 Tumut was wound up under a creditors' voluntary winding up with Maxwell William Prentice and Vince Christopher Barilla being appointed as joint liquidators on 28 April 1999. On 7 January 2006 it was deregistered. However, on 7 July 2008 the registration of Tumut was reinstated by an order of the Supreme Court of New South Wales whereupon Nicholas James David Crouch, the plaintiff/respondent in these proceedings, was appointed as Tumut's official liquidator. 30 On 25 November 2008 Mr Crouch in his capacity as liquidator of Tumut made an ex-parte application under s 596A of the Act and Rule 11.3 of the Rules, as the plaintiff, for orders with respect to the issuing of summons for the examination of two persons who had previously served as, in one case, a director and, in the other, a secretary, of Tumut. That originating process was superseded by an Amended Originating Process dated 5 December 2008 in which the orders were sought under s 596A 'and or section 596B' of the Act and Rule 11.3 of the Rules. 31 On 25 May 2009 Mr Crouch reported that since his appointment as liquidator of Tumut 'I have undertaken a series of public examinations of a former director of [Tumut] in an attempt to investigate and determine the rightful owner of right title and interest in loan books, presently alleged to be owned by HP Mercantile Pty Ltd [the first applicant named in the Further Amended Interlocutory Process] …' The relevant examinee was Andrew Charles Purcell, a director of Tumut from 15 June 1988 to 26 July 2001. 32 In his circular of 25 May 2009 Mr Crouch said: 'The loans arise from various horticultural investment projects which were promoted by [Tumut]. These loans were assigned up to 4 times to a number of companies during 1996-2004. [HP Mercantile Pty Ltd] claims to be the rightful owner of the loan books and is systematically attempting to enforce recovery from investors. The projects I am principally concerned with are: - the Tumut River Orchard projects of 1991 and 1992; - the Coonabarabran Orchard project of 1993; - the Queensland Orchard project of 1994 - the Treetop project of 1996; - the Treetop Plum project of 1996; - the Treetop Apples project of 1997; and - the Harcourt Vines project of 1997. The purpose of this circular is to apprise investors as to the outcome of my investigations to date, and seek interest by way of funding for further investigation and thereafter litigation against [HP Mercantile Pty Ltd] to challenge the ownership of right, title and interest in the loan books. If the assignments were not valid, ownership of the loan books may revert to me as liquidator. … FUNDING SOUGHT I plan to undertake further public examination of [HP Mercantile Pty Ltd] directors and associates over the following months. I invite expressions of interest from all former investors and creditors to further fund the proposed public examination and investigation generally. As liquidator I will support a litigation funding arrangement whereby those who provided funding receive a premium on the distribution of any assets recovered and received in the liquidation. The terms of the arrangement will be negotiated once I have expressions of interest from those prepared to fund the liquidation. If I find sufficient evidence to challenge the ownership of the loan books and am successful in that challenge against [HP Mercantile Pty Ltd], I will make an application to Court for an order that any investor or creditor who funded my investigation adequately will be rewarded with the ownership of the debt claimed to be payable to [HP Mercantile Pty Ltd, Tumut] or Merilbah. Therefore the funder should be relieved of the obligation to pay anything to [HP Mercantile Pty Ltd] or me as liquidator. I confirm that orders of the Court of this kind are discretionary. At this point in time I am seeking to gauge the level of support there may be from investors and creditors for the proposed further investigation and potential litigation. If the level of support is adequate, I will invite funding at a rate of $300.00 per allotment or $750.00 for Tumut River Orchard Projects of 1991 & 1992. … … If adequate funding is not pledged I will finalise my investigations. …' (emphasis added)

33 Merilbah was registered on 19 August 1985. On 7 February 2008 Mr Crouch and Shabnam Amirbeaggi were appointed as joint liquidators of Merilbah. 34 On 11 September 2009 Mr Crouch as official liquidator of both Tumut and Merilbah sent a circular to 'INVESTORS & CREDITORS'. The circular included: '[HP Mercantile Pty Limited] claims to be the rightful owner of the loan books and is systematically attempting to enforce recovery from investors. In the Supreme Court of NSW matter number 1629 of 2009 [HP Mercantile Pty Limited] has disclosed its intension (sic) to commence litigation against 700 various investors for the recovery of debts that arose from investments in the failed investment scheme. … As a consequence of my intervention these proceedings cannot commence until 16 December 2009. Recently, I wrote to some 200 investors to determine if they would fund my further investigations approximately 40% indicated they would support this process. … FUNDING SOUGHT I plan to undertake further public examination of [HP Mercantile Pty Ltd] directors and associates over the following months. I invite funding from all former investors and creditors to assist my proposed public examination and investigation generally. If I discover sufficient evidence to challenge the ownership of the loan books and am successful in that challenge against [HP Mercantile Pty Limited], I will make an application to Court for an order that any investor or creditor who funded my investigation adequately will be rewarded with the ownership of the debt claimed to be payable to [HP Mercantile Pty Limited, Tumut] or Merilbah. Therefore the funder should be relieved of the obligation to pay anything to [HP Mercantile Pty Ltd] or me as liquidator. I confirm that orders of the Court of this kind are discretionary but are consistent with the public policy of s 564 of the Corporations Act. I now invite funding at a rate of $550.00 per allotment or $1100.000 for Tumut River Orchard Projects of 1991 & 1992. Amounts must be payable within 14 days, to the following account Account Name: Merilbah Investments Pty Ltd (In Liquidation) BSB: 012-003 Account Number: 8253 95397.'

35 An Australian Securities & Investments Commission Historical Extract of 20 November 2008 suggested that Mr Myers had been a director of Treetop Projects Limited ACN 081 209 298 from 21 June 1999 to 31 October 2007. 36 An Australian Securities & Investments Commission Historical Organisation Extract of 18 March 2009 suggested that Mr McDonald had been a director of Merilbah from 5 August 2001 to 29 January 2006 and that Mr Myers (referred to as 'Myres') had been appointed as a director and secretary of Merilbah on 29 January 2006. 37 In an affidavit sworn 9 November 2009 Mr Chapman deposed to the fact that neither Mr McDonald nor Mr Myers had ever been a director, officer or employee of HP Mercantile Pty Limited. 38 Mr Chapman deposed to being a director of Stratford Capital Corporation Pty Ltd ACN 003 391 946 which serves as the manager of a portfolio of loan debts for HP Mercantile Pty Limited. He further deposed to being authorised to swear his affidavit on behalf of, amongst others, HP Mercantile Pty Limited, Mr McDonald and Mr Myers. 39 In an affidavit sworn 30 November 2009 Mr Chapman stated that he had never been a director, officer, employee, servant or agent of: '4.1 TROM [Tumut] 4.2 Merilbah; 4.3 Treetop [Treetop Projects Limited ACN 081 209 298]; 4.4 Core [Core Finance Pty Ltd ACN 128 578 361 referred to elsewhere as ACN 073 869 897]; or 4.5 Symsung [Symsung Pty Ltd ACN 079 014 243].'

40 In respect of the summons for Mr Chapman's examination he deposed as follows: '7. On the face of my Summons for Examination: 7.1 some of the documents bear no relation to [Tumut] or its examinable affairs; 7.2 some of the documents cover a period of more than 14 years being June 1995 to date, including the period before 29 May 1998 when the first relevant assignment from [Tumut] to Treetop took place. 7.3 it includes a potentially wide range of documents which could not be relevant to the examinable affairs of [Tumut]; 7.4 it includes a wide range of my personal documents which could not be relevant to the examinable affairs of [Tumut]; and 7.5 concern payments from 30 June 1995 which prima facie do not appear to relate to whether or not assignments took place, but might relate to issues of credit or matters irrelevant to the examinable affairs of [Tumut].' (emphasis added)

41 Mr Chapman did not claim to have any legal qualifications such that it may be assumed that he would know what was meant by Tumut's 'examinable affairs' and what might be 'relevant' in relation thereto. However his assertion that the first relevant assignment from Tumut to Treetop Projects Limited took place on 29 May 1998 demonstrates that he is clearly able to give information about that aspect of Tumut's examinable affairs.

The requirements of the summons in respect of the production of books 42 Since Mr Chapman swore his affidavit of 30 November 2009 Mr Crouch has dramatically altered his specification of the books of which he seeks production. 43 The summons served on Mr McDonald required him to attend before the Court for examination on oath or affirmation about the examinable affairs of Tumut and to produce at his examination certain books. The summons included definitions of 'books', 'financial records' and 'document' but it is unnecessary for present purposes to go to the extended definitions of those words. The summons issued on 30 October 2009 called for the production of: '(b) … (i) all books and financial records (within the meaning ascribed to those terms in section 9 of the Corporations Act 2001) of Merilbah Pty Limited (sic) (In Liquidation) A.C.N. 002 979 893 (Merilbah); (ii) all documents concerning the affairs of Merilbah Pty Limited (In Liquidation) A.C.N. 002 979 893 (Merilbah); (iii) all documents evidencing and or recording any agreement and or arrangement between you and Merilbah, Andrew Purcell and or Brenton Ralph Arnott-Smith concerning remuneration paid to you in respect of your appointment as a director of Merilbah; (iv) all documents evidencing and or recording any payments or advances from Merilbah to HP Mercantile Pty Limited A.C.N. 097 363 877 for the period from 1 June 1999 to date; (v) all documents evidencing and or recording any meetings of directors of Merilbah for the period from 1 January 1999 to 31 December 2001; and (vi) all documents including but not limited to file notes, diary entries and minutes of meeting concerning and or relating to the management of Merilbah.'

44 When the hearing of the Further Amended Interlocutory Process resumed on the afternoon of 2 December 2009 an order was made by consent that the summons directed to Mr McDonald be varied by deleting paragraph (b)(ii) thereof. 45 In the early afternoon on 3 December 2009 Mr Crouch through his counsel submitted to the Court three documents entitled 'SCHEDULE TO McDONALD SUMMONS', 'SCHEDULE TO MYERS SUMMONS' and 'SCHEDULE TO CHAPMAN SUMMONS'. These Schedules proposed the further variation of the summons directed to Messrs McDonald, Myers and Chapman by deleting all material appearing after the words '(b) to produce at the examination the following books:' and preceding the date of the summons and substituting the relevant Schedule. The Schedule introduced a definition of 'Document' and a further definition of 'Documents' following which, in the case of Mr McDonald, the books, the production of which at his examination was required were: 'The original or, only if the original is unavailable, a copy of each of the documents mentioned below: 1. All documents recording any of the following purported assignments of the book debts of Tumut River Orchard Management Limited (in liquidation) A.C.N. 003 501 611 ("TROM") for each of the following projects (collectively "the Loan Books"), including without limitation any agreement to assign or minute recording or relating to such assignment: (a) Assignment of the Coonabarabran & Queensland project loans from: (i) Tumut River Orchard Management Limited A.C.N. 003 501 611 (TROM) to Core Finance Pty Limited A.C.N. 073 869 897 (sic) (Core) in or about June 1996; (ii) Core to Merilbah Investments Pty Limited A.C.N. 002 979 893 (Merilbah) between about March 2000 and October 2000; and (iii) Merilbah to HP Mercantile Pty Limited A.C.N. 097 362 877 (HPM) in or about August 2001. (b) Assignment of Treetop & Plum project loans: (i) TROM to Symsung Pty Limited A.C.N. 079 014 243 (Symsung) in or about June 1997; (ii) Symsung to Merilbah between about March 2000 and October 2000; and (iii) Merilbah to HPM in or about August 2001. (c) Assignment of Coonabarabran, Queensland and Treetop harvesting and marketing costs: (i) Treetop Investments Pty Limited A.C.N. 056 370 499 [not to be confused with Treetop Projects Limited ACN 081 209 298] (Treetop) to Merilbah between about March 2000 and October 2000; and (ii) Merilbah to HPM in about August 2001. (d) Assignment of Tumut, Apple and Harcourt project loans: (i) TROM to Treetop in about May 1998; (ii) Treetop to Merilbah between about March 2000 and October 2000; and (iii) Merilbah to HPM in about 31 August 2001. 2. All documents listing the names and addresses of all investors and/or debtors named in the Loan Books. 3. All documents recording any payment made by any investor or debtor named in the Loan Books to HPM in respect thereof. 4. All notices of assignment sent to any investor or debtor in respect the (sic) aforesaid assignments or any of them. 5. Any valuation of the Loan Books or any of them for the period 1 March 2000 to 1 September 2001. 6. Any document recording any consideration paid by Merilbah for or in respect of any of the aforesaid assignments of the Loan Books or any of them.'

46 The summons directed to Mr Myers was also issued on 30 October 2009. It required his attendance before the Court to be examined on oath or affirmation about the examinable affairs of Tumut and to produce at his examination certain books. Once again the summons included extended definitions of the words 'books', 'financial records' and 'document'. In the case of Mr Myers he was called upon to produce: '(b) … (i) all books and financial records (within the meaning ascribed to those terms in section 9 of the Corporations Act 2001) of Merilbah Pty Limited (sic) (In Liquidation) A.C.N. 002 979 893; (ii) all documents evidencing and or recording any payments and or advances to you from HP Mercantile Pty Limited A.C.N. 097 362 877 or any representative or agent thereof for the period from January 1996 to date; (iii) all documents evidencing and or recording any payments and or advances from Merilbah to you for the period from January 1996 to 7 February 2008. (iv) all bank statements and or credit card statements in respect of accounts held in name of Merilbah, your name and or any other accounts of which you were a signatory for the period from January 1996 to 7 February 2008; (v) all documents evidencing communications between yourself and Andrew Purcell, Ross Chapman and or HPM (or any representative or agent thereof) for the period January 2000 to date; (vi) all documents relating to any purported assignment of the loan book from Merilbah to HPM which is said to have occurred on 31 August 2001, including but not limited to valuations, calculations, schedules of investors/debtors etc.'

47 When the hearing of the Further Amended Interlocutory Process resumed on the afternoon of 2 December 2009 a further order was made by consent that the summons directed to Mr Myers be varied by deleting paragraph (b)(iv) thereof. 48 The 'SCHEDULE TO MYERS SUMMONS' which was provided by counsel for Mr Crouch in the early afternoon of 3 December 2009 sought a variation of the summons directed to Mr Myers by the deletion of all words appearing in the summons after '(b) to produce at the examination the following books:' and preceding the date thereof with the same words as were proposed in the 'Schedule to McDonald Summons' for inclusion in the McDonald summons, including the same typographical error where the word 'of' was plainly omitted from paragraph 4. 49 In the case of Mr Chapman the summons directed to him was also issued on 30 October 2009. It required him to attend before the court to be examined on oath or affirmation about the examinable affairs of Tumut and to produce certain books at his examination. Once again, the summons included extended definitions of the words 'books', 'financial records' and 'document'. In the case of Mr Chapman the books which he was required to produce were as follows: '(b) to produce at the examination the following books: (i) all books and financial records (within the meaning ascribed to those terms in section 9 of the Corporations Act 2001) of Merilbah Pty Limited (sic) (In Liquidation) A.C.N. 002 979 893 (Merilbah); (ii) all documents relating to loan books owned or formerly owned by Tumut River Orchard Management Limited A.C.N. 003 501 611, Treetop Projects Limited A.C.N. 081 209 298, Core Finance Pty Limited A.C.N. 073 869 897 (sic), Symsung Pty Limited and or Merilbah Pty Limited (In Liquidation) A.C.N. 002 979 893 (Merilbah), including but not limited to full details of any debtors/investors (names, address, contact details etc.), due diligence, valuations and or payments received in respect of said loan books; (iii) all documents evidencing or recording any agreement and or arrangement between you and Andrew Purcell, John Campbell Myres (sic), Brenton Ralph Arnott-Smith, George Roy William McDonald and or Merilbah for the period from 30 June 1995 to date; (iv) all documents evidencing and or relating to payments received and or disbursements of funds in relation to any loan books referred to in paragraph (ii) above; and (v) all documents evidencing and or recording any payments to Andrew Purcell, John Campbell Myres (sic), Brenton Ralph Arnott-Smith, George Roy William McDonald and or Merilbah for the period from 30 June 1995 to date.'

50 When the hearing of the amended interlocutory process resumed on the afternoon of 2 December 2009 an order was made by consent in respect of the summons directed to Mr Chapman for the deletion therefrom of all words in paragraph (b) after the words 'the following books' and the substitution of words as recorded on the 'Schedule to Chapman summons' as amended, which provided for the production at Mr Chapman's examination of the following documents: 'The original or, only if the original is unavailable, a copy of each of the documents mentioned below: 1. All documents recording or concerning any of the following purported assignments of the book debts of Tumut River Orchard Management Limited A.C.N. 003 501 611 ("TROM") for each of the following projects (collectively "the Loan Books"): (a) Assignment of the Coonabarabran & Queensland project loans from: (i) Tumut River Orchard Management Limited A.C.N. 003 501 611 (TROM) to Core Finance Pty Limited A.C.N. 073 869 897 (sic) (Core) on or around 28 June 1996; (ii) Core to Merilbah Investments Pty Limited A.C.N. 002 979 893 (Merilbah) on or around 15 March 2000; and (iii) Merilbah to HP Mercantile Pty Limited A.C.N. 097 362 877 (HPM) on or around 31 August 2001. (b) Assignment of Treetop & Plum project loans: (i) TROM to Symsung Pty Limited A.C.N. 079 014 243 (Symsung) on or around 28 June 1996; (ii) Symsung to Merilbah on or around 15 March 2000; and (iii) Merilbah to HPM on or around 31 August 2001. (c) Assignment of Coonabarabran, Queensland and Treetop harvesting and marketing costs: (i) Treetop Investments Pty Limited A.C.N. 056 370 499 (Treetop) to Merilbah on or around 15 March 2000; and or (ii) Merilbah to HPM on or around 31 August 2001. (d) Assignment of Tumut, Apple and Harcourt project loans: (i) TROM to Treetop on or around 29 May 1998; (ii) Treetop to Merilbah on or around 15 March 2000; and (iii) Merilbah to HPM on or around 31 August 2001. 2. All documents listing the names and addresses of all investors and or debtors named in the Loan Books. 3. All documents recording any payment made by any investor or debtor named in the Loan Books to HPM in respect thereof. 4. All books and financial records (within the meaning ascribed to those terms in section 9 of the Corporations Act 2001) of Merilbah Pty Limited (In Liquidation) A.C.N. 002 979 893 (Merilbah). 5. All documents recording or concerning any agreement and or arrangement concerning the Loan Books or their purported aforesaid assignments between HPM on the one hand and any of you, Andrew Purcell, John Campbell Myers, Brenton Ralph Arnott-Smith, George Roy William McDonald or Merilbah on the other for the period from 1 June 1996 to date; 6. All documents recording any payments received you (sic) from HPM or any other person or entity in relation to the Loan Books or their collection.'

51 In relation to the summons directed to Mr Chapman, Mr Crouch proposed a further amendment to that summons on the early afternoon of 3 December 2009 seeking a deletion of the words as recorded on 'SCHEDULE TO CHAPMAN SUMMONS' as amended which was provided to the Court on the afternoon of 2 December 2009 and the substitution of a new 'SCHEDULE TO CHAPMAN SUMMONS'. That Schedule incorporated definitions of 'Document' and 'Documents' which had been deleted from the earlier iteration and then repeated the words used in the 'Schedule to McDonald Summons' down to and including the proposed new paragraph 4, incorporating the same typographical error as had been included in the McDonald and Myers schedules. The new 'SCHEDULE TO CHAPMAN SUMMONS' then continued with paragraphs 5 - 7 as follows: '5. Any valuation of the Loan Books or any of them for the period 1 July 2001 to date. 6. Any document for the period 1 August 2001 to date recording the total amount due from investors and/or debtors under or in respect of the Loan Books and each of them. 7. Any document in the period in January 2008 to date containing a summary of expenses paid by HPM [HP Mercantile Pty Limited] in respect of collection of the Loan Books.' 52 The proposed reformulation of the several requirements for the production of books at the respective examinations demonstrates a marked improvement on the earlier formulations, which raised serious doubts in my mind as to whether what was being sought could possibly answer the description of specified books that related to Tumut or to any of its examinable affairs, within the meaning of s 596D(2)(b) of the Act. 53 Having said that, I must say that I have some remaining concern with the reformulation of paragraph 6 in the proposed Schedules to the summons directed to Mr McDonald and to Mr Myers. I have difficulty in seeing how any consideration paid by Merilbah to Core Finance Pty Limited, Symsung Pty Limited and/or Treetop Projects Limited for the assignment to it of choses in action acquired by Core Finance Pty Limited and/or Symsung Pty Limited and/or Treetop Projects Limited from Tumut could bear upon the business, trading, transactions and dealings, property, liabilities, profits and other income, receipts, losses, outgoings or expenditure of Tumut (see s 53 of the Act). There are other difficulties with paragraphs 1(a)(ii) and (iii), 1(b)(ii) and (iii), 1(c)(i) and (ii) and 1(d)(ii) and (iii) for the same reason.

The applicants' submission 54 Messrs. McDonald, Myers and Chapman submit that the summons directed to them should be discharged because Mr Crouch is 'hopelessly conflicted'. It is submitted that he cannot properly act in the interests of the creditors and contributories of Tumut whilst he is serving as a joint liquidator with Ms Amirbeaggi in respect of Merilbah. The conflict upon which Messrs McDonald, Myers and Chapman rely is founded upon Mr Crouch's 'competing' interests, as liquidator of Tumut, and, at the same time, as a joint liquidator of Merilbah. As liquidator of Tumut his inquiries relate to the debts owed by the taxpayers/investors/growers to Tumut and the possible assignment thereof to Core Finance Pty Limited and/or Symsung Pty Limited and/or Treetop Projects Limited. He wishes to ascertain whether the assignments may have been ineffective or otherwise invalid. Wearing his hat as a joint liquidator of Merilbah it is said that Mr Crouch's interest is in establishing the effectiveness and validity of the assignments of the several debts to Core Finance Pty Limited and/or Symsung Pty Limited and/or Treetop Projects Limited such that Merilbah validly acquired and thereby became the owner of the relevant choses in action, which it was then able to validly assign to HP Mercantile Pty Limited. Secondly, they submit that the proposed means of funding Mr Crouch's costs and expenses in undertaking the proposed examinations of them is an improper exercise of the powers of the liquidator of Tumut. Thirdly, they submit that each of the summons is too wide in terms of the books the production of which is sought in that they travel beyond books that relate to Tumut or to any of its examinable affairs. In this regard they submit that the summons are so expressed as to indicate that Mr Crouch is seeking to use the summons for a collateral and impermissible purpose. They assert that two of the three examinees are presently persons who have provided affidavits for use in proceedings in the District Court of New South Wales in which HP Mercantile Pty Limited is plaintiff and Tumut is a defendant. Fourthly, they submit that the summons call for the production of books that do not relate to Tumut or to any of its examinable affairs and are simply personal documents of the individuals. Fifthly, they submit that the summons have not been issued in the interests of the creditors or contributories of Tumut and that there is no relevant public interest in having the individuals named therein examined.

Consideration 55 It must be borne in mind that the examinations to which the summons relate do not form part of any contested inter-partes proceedings. The primary role of a liquidator conducting an examination is to investigate the facts that bear upon the examinable affairs of the relevant company as best he can, and the reliability of those who give sworn evidence about those facts. What is revealed may provide the foundation for a decision to commence, or to proceed with existing, litigation or to refrain from so doing. The facts as revealed may provide a basis for claims to be made which will be met without the necessity for any litigation. 56 Liquidators are well-attuned to the need for discernment when reviewing factual matrices of which they become aware. Whether they be liquidators of other companies that may be related to the company whose affairs are under examination or that may have had dealings with such company is, generally speaking, irrelevant. They will have as much interest in learning that an item of property is an asset of company A as in learning that it is not such an asset, if there is reason to doubt what may be perceived or alleged to be the true position. Questions of conflict of interest will only arise if there are disputed claims to the same assets by companies of which the same person is liquidator. The allegation that Mr Crouch is 'hopelessly conflicted' is premature and may never be warranted. Were there to be disputed claims to the same assets one might reasonably expect that Mr Crouch would seek the appointment of special liquidators to Merilbah to deal with the conflict. In any event, the role of Ms Amirbeaggi as a joint liquidator of Merilbah cannot be overlooked. 57 It would be trite to say that a liquidator's primary focus will be upon serving the interests of the creditors and contributories of the company that is in liquidation. Such a liquidator certainly has no obligation to find ways and means whereby debtors of the company can avoid their obligations to the company. However, when the funding of a liquidator's activities may be an issue, I can see nothing wrong in principle with a liquidator offering to do deals with certain of a company's debtors if, by so doing, he is able to raise funds to facilitate the recovery of monies from the remaining debtors of the company provided that, in the end result, the course of action that he adopts is one that is directed at serving the best interests of the company's creditors and contributories. 58 Arguably, it would be improper for Mr Crouch to use funds of Merilbah to conduct investigations into the examinable affairs of Tumut, but that does not mean that monies which may have been subscribed to provide funding for further public examinations, that may have been banked into an account in the name of Merilbah, are necessarily to be taken to be funds of Merilbah in the circumstances of this case. Having said that, it is hardly a matter for a potential examinee, who can give information about the examinable affairs of a company, but would prefer not do so, to challenge the means of funding which a liquidator may have chosen to employ. 59 As the authorities cited above make clear, the fact that two of the intended examinees may have provided affidavits for use in proceedings in the District Court of New South Wales in which HP Mercantile Pty Limited is a plaintiff and Tumut is a defendant, is irrelevant, so long as the liquidator does not abuse the process for which s 596B of the Act makes provision. In normal circumstances, the mere engagement of the investigation process will not of itself constitute an abuse of process. 60 The fact that a liquidator may already have copies of relevant documents provides no justification whatsoever for such a liquidator being deprived of the opportunity to obtain or to seek to obtain further copies of those documents, if they exist, from persons who are able to give information about the examinable affairs of the company in liquidation. Other copies of documents may reveal textual differences between copies, alterations, handwritten notes subscribed thereto, the use of different typefaces in the creation of the different copies, different document codes endorsed thereon, and so on. The mere fact that a particular examinee has or lacks a copy of a particular document may well bear upon the efficacy of transactions affecting the company's property which are under consideration. 61 It seems to me that the liquidator has a very real interest in exploring the true position in respect of the so-called assignments of the choses in action which were said to have arisen upon the borrowing of funds from Tumut by the various taxpayers/investors/growers, to enable them to participate in the various schemes. 62 The examination process provides a just mechanism whereby the liquidator may elicit the facts relevant to the making by him of a decision as to the existence of unpaid debts that may be owing by such taxpayers/investors/growers to Tumut, and the recoverability thereof. 63 The ability of HP Mercantile Pty Limited to collect debts owed by taxpayers/investors/growers to Tumut is plainly dependent upon the existence of enforceable debts owed by such persons to Tumut and the validity of the respective assignments to the various intermediate 'owners' of those debts and the assignments thereof from Merilbah to HP Mercantile Pty Limited. A liquidator of Tumut might reasonably expect that anyone seeking to enforce the payment of the relevant debts would be able to provide information as to the existence of the debts, the validity of the assignments thereof to Core Finance Pty Limited, Symsung Pty Limited or Treetop Projects Limited as the case may be, the cost of recovering debts said to have been lawfully assigned and the perceived value of such debts. 64 Similarly, a liquidator of Tumut might reasonably expect that officers of Merilbah, as one of the alleged intermediate owners of the relevant choses in action, would be able to provide like information with the exception of recovery costs that may have been incurred in securing the payment of debts. 65 Whilst Mr Chapman may have been a director of Stratford Capital Corporation Pty Limited which served as the manager of a portfolio of loan debts for HP Mercantile Limited, the fact that Mr Chapman was authorised by HP Mercantile Pty Limited, Mr McDonald and Mr Myers to swear his affidavit of 9 November 2009, further demonstrates that each of Messrs McDonald, Myers and Chapman are persons likely to be able to give information about examinable affairs of Tumut. 66 In my opinion the second, third and fourth applicants have failed to make out a case for the discharge of the examination summons directed to them. 67 No direction should be given at this stage about the matters to be inquired into at the several examinations, under s 596F(1)(a) of the Act. 68 This brings me to a consideration of the requirements sought to be imposed upon each of the second, third and fourth applicants for the production of specified books that may be in their respective possession and which relate to Tumut or to any of its examinable affairs.

McDonald summons 69 In my opinion the requirements of the summons for examination filed 30 October 2009 and directed to Mr McDonald in respect of the production by him of specified books at his examination were entirely inappropriate. They did not demonstrate an interest in ascertaining information about the examinable affairs of Tumut except in the most oblique way. For instance, there may have been within minutes of meetings of directors of Merilbah or other documents concerning or relating to the management of Merilbah, information revealing a lack of authenticity or validity in respect of assignments of choses in action by Tumut to Core Finance Pty Limited, Symsung Pty Limited and/or Treetop Projects Limited, but this was not readily apparent from the formulation of the document production requirements in the summons. 70 The problem with the summons filed 30 October 2009 was not cured by the omission of paragraph (b)(ii) as occurred on 2 December 2009. 71 If one were to construe the 'SCHEDULE TO McDONALD SUMMONS' which was provided to the Court in the early afternoon of 3 December 2009 as an application for amendment of the examination summons directed to Mr McDonald, I would not allow the amendment in the terms proposed. In my opinion the requirements of the 'SCHEDULE TO McDONALD SUMMONS' which are to be found in paragraphs 1(a)(ii) and (iii), 1(b)(ii) and (iii), 1(c)(i) and (ii), 1(d)(ii) and (iii) and 6 should not be allowed. However, subject to the deletion of the definition of 'document' and 'documents', it would be appropriate to allow amendment to the examination summons to require the production of documents answering the description of the remaining paragraphs in the 'SCHEDULE TO McDONALD SUMMONS'. It would also be appropriate to correct the typographical error in paragraph 4 by inserting the word 'of' after 'in respect'.

Myers summons 72 The same observations as have been made in respect of the summons directed to Mr McDonald apply with equal force to the requirements for the production of documents contained in the summons for examination filed 30 October 2009 and directed to Mr Myers. In his case, the deletion of paragraph (b)(iv) did not overcome the fundamental deficiencies in those requirements. 73 The observations made by me in respect of the proposed further amendment of the summons directed to Mr McDonald also apply to the proposed further amendment of the summons directed to Mr Myers as set out in the 'SCHEDULE TO MYERS SUMMONS'. 74 The summons directed to Mr Myers should be dealt with in the same way as the summons directed to Mr McDonald.

Chapman summons 75 In my opinion the first iteration of the examination summons filed 30 October 2009 and directed to Mr Chapman, did not call for the production at his examination of specified books that related to Tumut or to any of its examinable affairs except in the most oblique way. Whilst some parts of the document production requirements of the summons may have withstood scrutiny, many of the requirements, on the face of it, were inappropriate. The second iteration of the requirement for the production of documents as recorded in the first 'SCHEDULE TO CHAPMAN SUMMONS' constituted a significant improvement on the first iteration, but it also contained deficiencies. The ultimate version upon which Mr Crouch now seeks to rely shares a number of problems in common with the schedules referable to the McDonald and Myers summons. 76 In my opinion, an amendment to the examination summons directed to Mr Chapman should be allowed subject to the deletion of the definitions of 'document' and 'documents' and the deletion of paragraphs 1(a)(ii) and (iii), 1(b)(ii) and (iii), 1(c)(i) and (ii) and 1(d)(ii) and (iii).

Costs 77 In a supplementary written submission of counsel for the second, third and fourth applicants of 4 December 2009, which dealt with the production of documents pursuant to the several summons, it was submitted that an opportunity should be afforded to the applicants to address the Court on the question of costs. 78 The second, third and fourth applicants propounded that each of the examination summons should be discharged and in this regard they have failed to make good their case as recorded in the Further Amended Interlocutory Process filed 30 November 2009. However, in relation to their alternative prayers for relief seeking the striking out of requirements for the production of documents, they have been substantially successful both in respect of the original formulation of the relevant requirement and the later formulations as well. 79 In my opinion the appropriate order as to costs would be one under which the plaintiff/respondent, Mr Crouch, was required to pay one quarter of the second, third and fourth applicants' costs. 80 Whilst it could be said that each party has enjoyed a measure of success and accordingly there should be no order as to costs, the fact is that the plaintiff/respondent did not propound an appropriate requirement for the production of documents, notwithstanding two opportunities to address the significant deficiencies in the original formulation of the document production requirements. 81 To avoid the necessity of further costs being incurred what I propose to do is to make an order in the terms which I have proposed, but I will direct that such order not be entered for a period of seven days to allow either party to make an application seeking a different order in relation to costs.

I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.

Dated: 11 December 2009 Counsel for the Applicants: L Gor