[2005] NSWCA 444
In the matter of Normans Wines Ltd (Receivers and Managers appointed) (in liq)
Source
Original judgment source is linked above.
Catchwords
[2005] NSWCA 444
In the matter of Normans Wines Ltd (Receivers and Managers appointed) (in liq)
Judgment (3 paragraphs)
[1]
Solicitors:
DLA Piper Australia (first and second applicants)
K&L Gates (third applicant)
Paul Bard Lawyers (respondent)
File Number(s): 2010/249314
[2]
Judgment (ex tempore)
HIS HONOUR: The applicants Mr Armstrong, Mr Lodge and Mr Watkins were, in the period of two years prior to the commencement of its winding-up, directors of the company Mustang Marine Australia Services Pty Limited, which went into voluntary administration on 19 March 2010. Although on 24 May 2010 the creditors resolved that the company enter into a deed of company arrangement, that deed was set aside by order of the Court on 10 December 2010, when orders were also made for the compulsory winding up of the company and appointing the respondent Mitchell Ball as its liquidator [In the matter of Mustang Marine Australia Services Pty Ltd (admin apptd) - Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429].
In the course of the proceedings for the setting aside of the deed of company arrangement, in which Perpetual Trustee Company Limited was the plaintiff, extensive discovery was had against the administrators. Perpetual agreed to fund an investigation of the company's affairs, which the liquidator has undertaken. On 28 May 2012, the liquidator obtained the leave of the Court under (Cth) Corporations Act 2001, s 477(2B), to enter into a funding arrangement [In the matter of Mustang Marine Australia Pty Limited [2012] NSWSC 620]. In support of that application, the liquidator swore an affidavit on 11 May 2012 in which he deposed to having reviewed extensive material and concluded that at no time during the period from incorporation to winding up were there reasonable grounds for a director of the company to expect that the company was solvent; that the first defendant Standard Bank Australia Limited was a de facto director of the company; and that Standard Bank and the directors of the company were liable for insolvent trading.
On 23 July 2012, the liquidator commenced proceedings against six defendants - including Standard Bank Australia Limited, the current applicants and Standard Bank PLC - relevantly for relief under Corporations Act, s 588M, against the directors in respect of insolvent trading, and also against Standard Bank on the footing that it was a shadow or de facto director. In support of that application, the liquidator swore an affidavit on 23 July 2012, based on what appears to have been a detailed investigation of the affairs of the company. He concluded, inter alia, that at all relevant times Standard Bank was either the holding company or acted as a de facto director of Mustang Marine; that Standard Bank and previous directors of the company were liable for contraventions of ss 588G and/or 588W; that during the period January 2008 to 19 March 2010 Standard Bank knew Mustang Marine was insolvent and allowed it to incur debts in the amount of $27 million; that while Standard Bank was a de facto director and holding company of Mustang Marine, it allowed Mustang Marine to incur unpaid liabilities of $28 million and had reasonable grounds to believe that Mustang Marine was insolvent when those liabilities were incurred; and that whilst each of the present applicants was a director of Mustang Marine, he allowed the company to incur certain liabilities - the precise quantum varies between them according to the period for which they were a director - and knew, or had reasonable grounds to believe, that Mustang Marine was insolvent when those liabilities were incurred.
On 24 January 2013, the liquidator issued a report to creditors, the practical effect of which is that the only outstanding matter in relation to the affairs of Mustang Marine is pursuit of the insolvent trading proceedings.
In the insolvent trading proceedings, the liquidator has filed a second further amended points of claim of some 29 pages, with attached particulars of some 65 pages, which include allegations that during the period 8 January 2008 to 19 March 2010 the company was insolvent and that Standard Bank Australia Limited was at all material times a shadow or de facto director of the company. The present status of the insolvent trading proceedings is that the pleadings have closed, such that the issues in dispute have been defined by those pleadings and particulars. The liquidator is now required to file the evidence upon which he relies in the proceedings, following which the defendants are required to serve any evidence upon which they wish to rely.
On 5 December 2013, the liquidator caused examination summonses to be issued to each of the present applicants. In support of the application for issue of the examination summonses - which were for mandatory examinations under Corporations Act, s 596A, each of the applicants being directors subject to mandatory and not discretionary examination - the liquidator filed an affidavit sworn 5 December 2013. By the present applications, the applicants apply to have the examination summonses directed to them discharged. In connection with this application, the liquidator has voluntarily disclosed to the applicants the affidavit filed in support of the examination summons.
The jurisdiction invoked by the present application was described by Basten J in Meteyard v Love (2005) 65 NSWLR 36; [2005] NSWCA 444 (at [44]-[45]), as follows:
[44] There is, in addition, an established line of authority to the effect that an eligible applicant under s 596B may examine a potential defendant, or an existing defendant, in relation to proposed or actual litigation, in order to determine whether the defendant has sufficient assets to meet an adverse judgment, if unsuccessful in the litigation. On the other hand, the authorities draw a line between those possible topics of inquiry and use of the examination process to determine the strength or weakness of the corporation's case, or its opponent's case, in relation to the dispute. In the recent decision of the Full Court of the Supreme Court of South Australia, In the matter of Normans Wines Ltd (Receivers and Managers appointed) (in liq); Harvey v Burfield [2004] SASC 171 Mullighan J quoted without criticism, the following statement of the trial judge at [42]:
The authorities establish that an improper purpose includes a purpose of using the examination as a dress rehearsal for cross-examination, or for the purpose of destroying the credibility of the examinees or witnesses who might be called for the examinee in substantive proceedings, or for the predominant purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, or simply to cause undue inconvenience or embarrassment to the examinee or to inflict costs
[45] This statement of principle may be accepted, but it runs together two separate considerations. The last category of examples, namely causing inconvenience or embarrassment or inflicting costs, might be described as an abuse of the process of the Court. Whatever the cause of action or statutory basis for the proceedings, use of the Court's processes to inflict financial or other collateral harm will always be improper: see Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 and Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 163 ALR 744. The other examples given may be understood as seeking to advance the legitimate purposes of the corporation, but not as obtaining information about its examinable affairs. Such proceedings would be improper because the purpose is foreign to the statutory purpose for which the power was conferred. There is a danger in using the term "abuse of process" to cover that latter class of case. It invites questions about the attainment of some unfair advantage. As Hayne J noted in the Supreme Court of Victoria in New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 at 616 (45):
Such an approach would obscure the fundamental question which is whether the power is being used for a purpose foreign to the purpose for which it was given. If it is, then there is an abuse for that reason. If it is not, then no question of fairness arises; the Legislature has permitted the step to be taken in such a case.
That is not to say that an examination may be undertaken in a manner which is vexatious, oppressive or abusive. As Hayne J noted in an earlier passage (at p.614(25)), quoting with approval from the judgment of Street J in Re Hugh J Roberts Pty Ltd (in liq) (1970) 91 WN (NSW) 537 at 541:
Vexation or oppression will not be tolerated no matter when the examination is held.
It is at the outset noteworthy that while his Honour said that the statement of principle by Mullighan J in In the matter of Normans Wines Ltd (Receivers and Managers appointed) (in liq); Harvey v Burfield [2004] SASC 171 may be accepted, it was important to recognise that it "ran together" two separate considerations, and that there was danger in using the term "abuse of process".
On such an application, the applicants for discharge of the examination summons bear the onus of demonstrating that the summons has been issued for an improper purpose. The liquidator bears no onus. As to this, see also Sherlock v Permanent Trustee Australia Limited (1996) 22 ACSR 16, in which it was held that a trial judge was wrong to draw the inference that a liquidator's purpose was not a legitimate one from the failure of the liquidator to provide any evidence at all of his purpose. However, in the present case, the liquidator has, in his affidavit of 5 December 2013, given some evidence of his purpose. That said, the purposes for which an examination is conducted are to be ascertained, not only from the avowed purpose of the liquidator, but also by inference from the circumstances and context in which it is to take place, and the nature of the proceeding that it is.
In this case, the liquidator deposed, and in his cross-examination substantially adhered, to the following purposes:
In my opinion the conduct of examinations of Watkins, Lodge and Armstrong pursuant to section 596A of the Corporations Act, 2001 and the response to the orders for production will assist me in determining:
(a) whether MMAS was insolvent at any time before 19 March 2010;
(b) if yes,
(i) whether MMAS did trade whilst insolvent and, if so, the periods when that occurred; and
(ii) whether SBAL acted in the capacity of a shadow or de facto director; and
(c) the prospects of recovering any amount found to be due to MMAS by reason of the aforementioned proceedings.
To that he added that he desired to ascertain whether the directors would be able to satisfy a compensation order if one were made. (However, for practical purposes, little turns on this, as such an examination would be very limited in scope and would not, I think, achieve the main purpose or object of the liquidator). The liquidator elaborated that he wished to ascertain the directors' views as to whether Standard Bank was a shadow director, the basis on which they said (as they do in their defences) that the company was solvent and, also, that the directors might give answers not favourable to their cases.
Of course, a liquidator conducting an examination is not confined in the conduct of the examination to any particular purposes or matters raised in the affidavit relied on to procure the issue of the summons. Generally speaking, the examination is at large, as long as it is confined to the examinable affairs of the corporation.
In the context in which these summonses were issued - that is to say, when all that remains in the liquidation of substance appears to be the insolvent trading proceedings, and the pleadings in those proceedings have closed but the evidence not yet adduced - the inescapable inference is that the examinations are intended to obtain information for use in and in connection with the insolvent trading proceedings. Such information may include evidence in the form of admissions, which may be tendered against the directors in the liquidator's case; information which leads to further lines of inquiry; information which improves the ability of the liquidator to make a judgment as to the commercial viability of the proceedings and the strengths and weaknesses of his case in them; and, generally, information to advance the prosecution of the liquidator's cases in those proceedings, or to assist the liquidator in obtaining the best commercial result in them.
Essentially, the applicants argued that it was apparent from the liquidator's affidavit in the s 477(2B) application, and his affidavit of 23 July 2012, that he already had a firm and concluded opinion. Indeed, the word "determination" was used and, at least to some extent, acceded to in the course of cross-examination, as to crucial matters in connection with the proceedings.
It cannot really be doubted that the liquidator has a firm and concluded opinion on most if not all the relevant issues in the proceedings, including that the company was insolvent and that the directors did not have reasonable grounds for believing otherwise. But there is all the difference in the world between the liquidator having a strong, firm and concluded opinion, or even having in his mind determined those matters, on the one hand, and proving those matters to a court on the other. The liquidator's opinion, except in so far as an expert opinion of insolvency might be admissible on those issues, would ordinarily not even be relevant to the court's consideration. On the other hand, what could be proved - particularly, what could be proved out of the mouths of the directors of the company - of course, would be admissible.
The applicants submit that, in effect, the liquidator is endeavouring to reverse the ordinary course of proceedings where the liquidator would be required to put on his evidence first, and then the defendants, if they wish to do so, put on theirs. Even if that were so, that begs the question, what is the purpose that underlies such endeavour. It seems to me that, realistically, it can only be so that the liquidator knows what the case is that he will have to meet, is better positioned to form a judgment as to the relative strength of the cases, avoids surprise in the course of the litigation, and/or is able to adduce evidence of the directors as admissions in his own case if unfavourable to them. Ultimately, the question is whether this falls within the category of "a forensic advantage not available to the other litigant", of the type that the cases suggest a liquidator is not permitted to use an examination of this kind to gain. As this kind of application has become quite commonplace, it is worth exploring some of the history that has led to the adoption of this phrase and what its meaning really is.
A useful starting place is the judgment of Lander J in Evans v Wainter Pty Ltd (2005) 145 FCR 176, where his Honour summarised the applicable principles as follows (at [252]).
In my opinion, the following propositions relevant to these appeals
emerge from the legislation and the authorities:
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 while 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.
Ryan and Crennan JJ concurred with his Honour.
I have already referred to the observations of Basten J in Meteyard v Love.
Each of those judgments refers to the proposition that 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. However, it is manifestly clear that the mere fact that an examination will give a liquidator a forensic advantage in pending or contemplated litigation does not render the examination an abuse of process.
In Sandhurst Trustees Limited v Harvey (2004) 49 ACSR 422, Doyle CJ said (at [51]):
The fact that a consequence of an examination order may be a forensic advantage to a particular class of creditors, or to a particular creditor of the corporation, or to a particular person does not of itself lead to the conclusion that the order was not made for a proper purpose.
In Simionato & Farrugia v Macks & Macks (1996) 19 ACSR 34, Lander J said (at [61]):
If the liquidator is seeking a forensic advantage not otherwise available that will amount to an abuse (Hong Kong Bank of Australia Limited v Murphy (1992) 28 NSWLR 512, 519; 8 ACSR 736). Summonsing a person for the purposes of an examination to destroy that person's credit, or to carry out a dress rehearsal of a cross-examination in proceedings instituted, or about to be instituted, would also not be permitted as an abuse but, as has been pointed out in the authorities, the mere fact that a forensic advantage is obtained is not decisive. It is the purpose that must be examined and it is the predominant purpose that must be ascertained to determine whether there has been an abuse.
In Hong Kong Bank v Murphy, to which his Honour referred, Gleeson CJ, after referring to Re Hugh J Roberts Pty Ltd (in liq) (1969) 91 WN (NSW) 537, to which I shall come, said:
While the Court will not permit a liquidator or other eligible person to abuse the process by using an examination solely for the purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, such as discovery, or inspection, on the other hand, the possibility that a forensic advantage will be gained does not mean that the making of an order will not advance a purpose intending to be secured by the legislation.
The cases make tolerably clear that in the context of references to forensic advantages not available to the ordinary litigant, the conduct of an examination purely for the purpose of destroying the examinee's credit or rehearsing the cross-examination in substantive proceedings is an impermissible purpose. But save for some cases in which an examination has been sought to be used in a manner inconsistent with orders for discovery already made in the substantive proceedings, the concept does not appear to be broader than that. In particular, the concept of a forensic advantage not available to the ordinary litigant does not include or extend to using the process of examination as a means of discovery to obtain admissions which may provide a case to answer in contemplated or pending proceedings, or to fortify a liquidator's case in those proceedings.
The starting point for that conclusion is probably Massey v Allen (1878) 9 Ch D 164 in which, in the context of an examination summons issued after proceedings had been commenced by the liquidator against Allen, it was argued that the liquidator was not entitled to ask any question arising out of the pending action and had no more rights to further discovery than any plaintiff had and could not ask for further evidence. Hall VC rejected that argument, saying (at 169):
There can be no cause of grievance to the witness whether he answers the questions put to him before the special examiner or in the witness box in this Court; therefore I shall order him to attend before the special examiner to be examined, and to answer the questions put to him. I cannot exclude any question relating to the matters in question [that being reference to the matters in question in the substantive proceedings] but must say that he is bound to answer everything relevant, and to give all the information in his possession in reference to the case [that being a reference in the substantive case].
Next, in In re Metropolitan Bank; Heiron's Case (1880) 15 Ch D 139, a voluntary liquidator had brought an action on behalf of the company against an officer of the company and exhibited interrogatories which had been fully answered by the officer. In that case - which, might at first sight be thought to support a more constrained approach - it was held that the liquidator should not be entitled to examine the defendant. James LJ said (at 142):
This liquidator before he commenced his action could have obtained under the Act of Parliament all the discovery he required. He did not choose to do so. He commenced his action, and called upon the Defendant to put in his statement of defence. He then called upon the Defendant to answer interrogatories, which he did, and then sought to enforce further answers, but the Judge held them to be sufficient. Having done all that, he now comes and seeks to take advantage of the inquisitorial powers conferred on him by the section. In my opinion, that is vexatious. It is an axiom that nemo debet bis vexari, but here the liquidator having subjected this Defendant to searching interrogatories now asks to interrogate him again. In my opinion the liquidator must be content with what he has done: At any rate, he ought to make out a very strong case before the Court will, after what has taken place here, allow him to proceed under the 115th section.
The 115th section referred to was a precursor of s 596A. That case was subsequently explained, as I shall in due course show, on the basis that it was really a case of election: the liquidator had elected to use the discovery and interrogatory procedures available in the substantive litigation and, having done so, ought not be permitted retrospectively to obtain further discovery by way of the examination process.
A not dissimilar result was reached in In re North Australian Territory Company (1890) 45 Ch D 87. There, the liquidator brought an action against another company and obtained an order for discovery in that action but the Court refused to order the production of documents, or the examination of the company's secretary on interrogatories, on the ground that at the present stage of the action, before a defence had been filed, discovery was premature. The liquidator then issued an examination summons and, upon the secretary refusing to answer questions relating to the matters in issue in the litigation, the Court held that as the liquidator had shown no reason for seeking the discovery except to assist him in the action and thereby to evade the order of the judge postponing discovery in the action, the witness was justified in refusing to answer the question. That, it might be thought, was a very clear case of abuse of process, because the judge in the substantive proceedings had held that discovery would be premature, and the liquidator sought to evade that ruling by the examination summons. Cotton LJ said (at 92):
In my opinion, it would be wrong to allow the liquidator, by means of s 115, to get by a side-wind discovery and inspection which Mr Justice Kay has said it would be premature to give. I do not at all say that circumstances may not hereafter occur when it may be right for the liquidator to put this question.
Bowen LJ and Fry LJ, in separate judgments, agreed with Cotton LJ.
In later proceedings, concerning the same liquidation, North Australian Territory Co v Goldsborough Mort and Co (1893) 2 Ch 381, however, Lord Esher MR said (at 384):
The Plaintiff company, who are in liquidation, brought an action against the Defendants, and subsequently obtained an order of the Court under s 115 of the Companies Act, 1862, for the examination of certain of the directors and officers of the Plaintiff company and of Mr Murray Smith, and the examination took place in due course. It has been suggested that the examination could not properly take place after the commencement of litigation, but the objection was not persisted in, and there is no such limitation in the Act of Parliament. If the examination were before action brought it would enable the company by their liquidator, or perhaps I should say the liquidator on behalf of the company, to consider whether it was desirable to bring the action, and if it took place after litigation, to consider whether it was worth while to proceed with it; there is nothing in the section to show that any distinction is drawn between the reasons which might influence the decision on the one hand to commence an action, or on the other hand to continue it. In the present case the action went on after the examination...
In New South Wales, the issues were considered in Re John Booth and Co Limited (1902) 2 SR (NSW) Eq 138. Mr Street, as the later Sir Phillip Street CJ then was, argued that the examination, which was of directors who were also plaintiffs in a suit against the company in liquidation, was brought not for the purpose of winding up the company, but of finding out what the directors' evidence in the suit was. He argued that the Court could allow any such questions to be put as could be put on interrogatories. That argument was rejected by Walker J, who said that while it was not the right of an official liquidator to conduct an examination when and how he chooses, because he can be controlled by the Court, the persons to be examined in this case were the directors of the company and consequently were, as far as the company was concerned, in a fiduciary position, and the knowledge that they had as to the affairs of the company ought to be at the disposal of any person who has an interest in the company in liquidation and who is represented now by the official liquidator:
It seems to me that the directors of the company in liquidation are bound to make the fullest disclosure to the liquidator, of all of the knowledge they possess as to the affairs of the company. If there were not any litigation pending between the liquidator and the directors, there could not I think be any question that the liquidator would be entirely justified in summoning the directors to be examined under the section and thereupon examining them in the most rigorous fashion as to their dealings with the company and as to the knowledge of its affairs. But in this case, the directors claim that they received from the company debentures over its assets and made it institute a suit against the official liquidator claiming to have their rights to these debentures established.
Does that alter the position? The moment before the filing of that suit, they were liable in my opinion to an examination such as I have indicated and that liability attaches to them by reason of their fiduciary relationship with the company. Can they evade that liability by putting on the file of the Court a claim which they make in their personal character? In my opinion, that cannot be so.
In Re Auto Import Company Australia Limited (1925) 25 SR (NSW) 52, Maughan AJ held that on an examination:
The master should allow all questions on matters which were in issue or relevant to the issue in a pending suit between the company and the examinee, if they were directed to ascertain whether the liquidator ought to defend the suit or whether he had a defence or whether he ought to recognise the plaintiff's claim, but he should disallow all other questions which were merely a rehearsal of the cross-examination which might take place on the hearing of the suit.
This case appears to have been the origin of the references to rehearsals of cross-examination. His Honour referred to the Re North Australian Territory Company case and to Massey v Allen, and said:
From those two cases one can extract two principles which, to a certain extent, may appear to conflict with each other. In the North Australian Territory Case, the Court laid down that generally speaking an examination under this section should not be permitted where its only object is to obtain discovery or to take the place of a discovery order. In the case of Ex Parte Carver, Sir George Jessel laid down that an examination should be allowed wherever the liquidator finds it necessary to ascertain facts that will assist him in the winding-up. I think probably the effect of both cases is to be found correctly stated in two text books.
In Lindley on Companies, 6th edition, this passage occurs (at 927):
This power of summoning persons for examination is conferred upon the Court for the purpose of the winding-up, and for the benefit of all the persons interested in it; and the Court will not allow the power to be used in a vexatious manner, or for an improper object, as, for instance to obtain discovery for use in proceedings in which an order for discovery has been already refused. It may, however, be exercised for the purpose of tracing money or documents of the company and investigating any of its transactions.
In Palmer 12th edition Pt 2 at 658, the learned editors say that:
The powers conferred by the above sections are frequently exercised, e.g. where the liquidator, from an examination of the books and papers of the company, or otherwise, has reason to suspect that there may be some claim under s 215 - the misfeasance section; or where he thinks there may be ground for taking proceedings for an action against promoters or others; or where proceedings are pending against the company, and he desires to ascertain whether he can prudently proceed with or defend an action.
Having observed that the liquidator was "quite in the dark as to whether he ought to defend this action at all - as to whether he has a defence or as to whether he ought to recognise [the plaintiff's] claim", his Honour said:
In as much as the object of the section is to enable the liquidator to obtain information on such points as this, I think that the examination ought to proceed. I therefore propose to answer the question so far as it goes in the negative. That is to say that the master is not bound to disallow all questions on matters which are in issue or relevant to the issue of independent suit.
35 His Honour then added the caveat that the liquidator was not entitled to have a dress rehearsal of the cross-examination in the action, pointing out that the master would no doubt "exercise his discretion properly with regards to each particular question".
In Re A Debtor [1958] 1 WLR 283, Jenkins LJ in the Court of Appeal distinguished Re North Australian Territory Company on the basis that in that case the examination summons procedure had been used for the ulterior purpose of obtaining in the action against the very person whose examination was sought, an advantage in a manner of discovery which had been denied to the liquidator in the action, which was a very good example of an abuse of process.
Most of these cases were reviewed by Street J, as Sir Laurence Street CJ then was, in Re Hugh J Roberts Proprietary Limited (in liquidation) [1970] 2 NSWLR 582. His Honour observed that in In re Metropolitan Bank; Heiron's Case, the liquidator was regarded in effect as having made an election to proceed to the machinery of ordering inter parte's interrogatories. His Honour said (at 540D) that there was ample authority to the effect that the liquidator's power to proceed by way of a private examination was available notwithstanding that the litigation to which the subject matter of the private examination may be directed, is already current.
His Honour referred to the similar practice in bankruptcy and cited two judgments - Ex Parte Davies [1891] 8 Morrison 168, 171, and Price, Re; Ex parte Commercial Banking Co of Sydney Ltd (No 3) (1948) 14 ABC 137, 140 - in which it had been said that it was no answer that an action was pending by the official receiver or trustee against the witness he proposed to examine. His Honour acknowledged (at 542) that it would exceed the legitimate use of the process where litigation is contemplated or commenced to summons the defendant's probable witnesses and examine them quite simply for the purpose of destroying their credit.
His Honour disassociated himself (at 542D) with observations made by Maughan AJ in Re Auto Import Company that fishing questions would be inappropriate, holding that in an examination, questions of a fishing nature were often entirely appropriate. His Honour also cited the observation of Walker J in Re John Booth & Company Limited to which I have referred.
His Honour's judgment has been seminal in this area and subsequently cited in appellate courts with approval on many occasions. Instances of this include Hong Kong Bank of Australia v Murphy (1992) 8 ACSR 736 (at 740-741) and Sherlock & Vagrand Pty Ltd (in liq) v Permanent Trustee Australia Ltd (1996) 22 ACSR 16 (at 42).
In Re Rothwell Limited (No 2) (1989) 15 ACLR 168, Nicholson J observed (at 181) that the discretion (as it then was) to issue an examination summons may be exercised whether the liquidator seeks 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. His Honour observed - as did the Court of Appeal in Hong Kong Bank v Murphy - that Australian authorities had not followed English authorities which held that if the evidence showed the liquidator had already commenced litigation or definitely decided to do so, the Court's predisposition would be to refuse an immediate order for examination, unless the liquidator could show special grounds to the contrary:
On the Australian authorities the relevance of the commencement of litigation or a decision to embark upon it is that it requires the court to approach the assessment of the liquidator's purpose with greater caution.
In Douglas Brown v Furzer (1994) 13 ACSR 184, the Full Court of the Supreme Court of Western Australia (constituted by Malcolm CJ, Ipp and Anderson JJ) was concerned with a situation in which the liquidator had sought orders requiring a Court to summons for examination an employee of the company. Malcolm CJ said (at 191):
The Australian authorities referred to by Nicholson J in Re Rothwells Ltd (No 2), above, do not suggest that it is a misuse of a liquidator's powers to conduct a fishing expedition or to obtain admissions or materials which he can use in current proceedings.
His Honour then referred to the judgment of Mason CJ in Hamilton v Oades, and added:
In my opinion, when one reads subss 597(14) and (14a) in the context of the provisions as they now appear, the patent object is to enable the liquidator or any creditor of the corporation to have access to the written record or authenticated transcript of an examination and use it in evidence in any proceedings against the person being examined. Taking all the provisions together, the intention of the legislation appears to be that such examination should now be carried out in such a way which will facilitate not only investigations but also the prosecution of civil or criminal proceedings, whether contemplated or already commenced, including civil proceedings by individual creditors. The intention is that the persons who are eligible applicants and any other relevant persons are given a forensic advantage which the court can prevent being abused by its control over the conduct of the examination.
This line of authority, I think, culminates in another Queensland decision, Adler v Qintex Group Management Services Pty Limited (1996) 22 ACSR 446 (a joint judgment of McPherson, Pincus and Derrington JJ). Their Honours said (at 448-449):
The other specific matters relied on by the appellant are subsumed in the more general complaint that, in examining Mr Adler as proposed, the liquidators will gain an advantage not available to ordinary litigants. It is of course possible to locate decisions in which weight has been given to such a consideration as tending against ordering examination. Re Westmex Ltd (in liq) (1995) 13 ACLC 1070 at 1080-1, on which reliance was placed, may afford an instance of that kind, although the decision in that case has now been reversed by the Court of Appeal of New South Wales: Sherlock v Permanent Trustee Australia Ltd (1996) 22 ACSR 16. However, it does not follow that, because a procedure for oral examinations or depositions is not generally available to litigants in Australia liquidators should be prevented from using it for the purpose of litigation: Worthley v England (1994) 52 FCR 69 at 91, 14 ACSR 407. The legislation gives a liquidator rights not possessed by other litigants: Hamilton v Oades (1989) 166 CLR 486 at 497, 85 ALR 1; 15 ACLR 123.
In the nature of things, liquidators when they are appointed labour under the particular disability of not knowing as much about the affairs of the company as former directors and others, and that they often cannot obtain reliable information about suspicious transactions.
Generally, the only source available to them is the records of the company such as books and documents, if still available, and the information they contain is always vulnerable to contrived explanations and even to distortion by persons not anxious to disclose what they really know about events that took place when they were in charge of the company's affairs. A plaintiff in civil proceedings is bound to prove his case and generally must do so by oral evidence. Directors and senior officers of the company in liquidation, even if they have not absconded, are often unwilling and uncooperative witnesses especially in matters in which they are the target of proceedings brought by the liquidator. Few other litigants suffer to that disadvantage, or to the same extent, as liquidators.
Compulsory examination is capable of providing evidence in the form of admissions (see Douglas-Brown v Furzer (1994) 11 WAR 400, 408), which may succeed in establishing a case at trial calling for an answer from the defendant. It was precisely because of the notorious defects of the old Chancery bill (of which interrogatories at one time formed a part) that early companies legislation provided the summary and simpler alternative procedure by misfeasance summons in the liquidation (Cavendish Bentinck v Fenn (1887) 12 App Cas 652, 660) coupled with a power to conduct an oral examination on oath instead of administering interrogatories. To deny to liquidators the use of the procedure for examination in litigation would deprive it of most of its practical utility.
In my view, those authorities establish that the concept of an examination summons being an abuse of process if used to procure a forensic advantage not available to the ordinary litigant does not extend to using the process as a means of discovery to obtain evidence and admissions which may raise a case to answer or prove the liquidator's case in contemplated or pending proceedings. It may be that if restrictions have been placed on discovery in the substantive proceedings, to seek to circumvent those restrictions would be an abuse of process. Such was the case in the North Australian Territory Company case, to which I have referred.
It might also be that if the examination is sought to be conducted at a very late stage in the proceedings, such that it would interfere with the examinee's preparation for trial, or after all the examinee's evidence was on, so that it was manifestly a rehearsal of the cross-examination, that it would then be an abuse of process. But, as here, where the liquidator's evidence, let alone the director's evidence, has not yet been served, this case does not approach that.
The cases to which I have referred illustrate that if the examination is used for the predominant purpose of undermining the credit of the examinee or by way of rehearsal for cross-examination, it will then constitute an abuse of process. There may be exceptional circumstances in which a judgment that an examination is to be used for that purpose can be made in advance, on an application to set aside the examination summons. However, as Maughan AJ pointed out in the case to which I have referred, those issues will usually better be addressed and controlled by the judicial officer presiding at the examination, who can judge, question by question, whether the procedure is being inappropriately used for one of those purposes.
It certainly cannot be said on the material before this Court at this stage, that this examination will be used for such a process.
In my judgment, the applicants have failed to establish that the examination summonses here have been issued or will be used for an improper purpose in the relevant sense.
I order that the interlocutory process be dismissed with costs.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 11 February 2015
Parties
Applicant/Plaintiff:
In the matter of Mustang Marine Australia Services Pty Ltd (admin apptd) - Perpetual Trustee Company Ltd