did the primary judge err in finding an abuse of process?
82 In his submissions on appeal, Mr Arnautovic tended to shy away from abuse of process as being the basis upon which he had sought to, and succeeded in having, the examination summons permanently stayed. There could be little doubt, however, that abuse of process was the very basis upon which the primary judge granted a permanent stay: Judgment at [74]. It would also appear from the primary judge's reasons that Mr Arnautovic's case was put on the basis of abuse of process: see in particular Judgment at [18].
83 While r 11.5 of the Corporations Rules does not, in terms, provide that an examination summons may only be discharged if it is found to be an abuse of process, an application to discharge an examination summons must be anchored in legal principle. Likewise, the Court's power to discharge an examination summons regularly issued under s 596A is not at large. The applicant must demonstrate some legal basis for discharging the summons. The principle that was invoked in Mr Arnautovic's case was abuse of process. The question, then, is whether her Honour erred in principle in finding that the examination summons that was issued and served on Mr Arnautovic was an abuse of the Court's processes and procedures.
84 There is no doubt that an examination process can be discharged or permanently stayed if the invocation of the examination process was for an improper or illegitimate purpose. If a power is used for a purpose foreign to the purpose for which it was given, there is an abuse of process for that reason alone; questions of fairness or unfairness do not arise: New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 at 616; (1994) 12 ACLC 586 at 591 (per Hayne J); referred to with approval by Basten JA (with whom Beazley and Santow JJA relevantly agreed) in Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 at [45].
85 It is unnecessary, for the purposes of this case, to decide whether improper purpose is an aspect of abuse of process or, as KDL submitted, provides a separate and distinct ground for discharging or staying an examination summons. Either way, there was no evidence of an improper or illegitimate purpose. So much appeared to be conceded by Mr Arnautovic before the primary judge: Judgment at [14].
86 Irrespective of Mr Arnautovic's apparent concession, the evidence indicated that KDL's purpose in examining Mr Arnautovic was to obtain information concerning the sales process of Ellendale, and to ascertain from the information it obtained whether any cause or causes of action may exist against Mr Arnautovic, and perhaps others, as a result of any identified defects or flaws in the sales process. There was no basis to conclude, and the primary judge did not conclude, that such a purpose would be foreign to the examination power in s 596A.
87 As discussed earlier, the primary judge found that the examination summons was an abuse of process for essentially two reasons. First, the examination was said to amount to a substantial intrusion into the liquidation. Second, it was said that KDL's desire to explore the circumstances of the sales process did not justify the exercise of the examination power under s 596A. In our opinion, both of those findings are problematic.
88 Dealing first with the "substantial intrusion" finding, it is possible to conceive of a case where an examination of a liquidator pursuant to a s 596A examination summons could be considered to be so burdensome, costly or intrusive to the liquidator, and his or her administration of the winding up of a company, that the summons could rightly be found to constitute an abuse of the Court's processes. If, for example, the evidence led on an application under r 11.5 of the Corporations Rules revealed that the winding up was in its very late stages, the proposed examination was expected to cover a very wide range of ill-defined topics, last many weeks, and involve considerable private and public expense, the Court might well conclude that the summons significantly intruded on the performance by the liquidator of his or her duties and the administration of the winding up. In those circumstances, the Court might well conclude that the examination would be seriously and unfairly burdensome, prejudicial or damaging, or productive of serious and unjustified trouble and harassment: cf Ridgeway v The Queen [1995] HCA 66; (1995) 184 CLR 19 at 75 (per Gaudron J); cited with approval in Batistatos at [14].
89 This, however, was not such a case. Mr Arnautovic led no evidence which was capable of supporting a finding that the proposed examination would be significantly burdensome, costly or intrusive to him or his administration of the winding up of KDC. The evidence revealed that KDL had undertaken to limit the examination to a fairly narrow and discreet topic - the sales process of the Ellendale mine. There was nothing to suggest that the examination would be lengthy or would require Mr Arnautovic to be significantly or substantially diverted from his task of administering the winding up. The process could not have been expected to be costly to Mr Arnautovic or KDC because KDL had undertaken to fund the examination at no cost to KDC: Judgment at [36]. In any event, by virtue of s 596F(1) and s 597(5B), the Court would remain in control of the examination, and could limit or end it if it was considered to be taking too long, or to be costing too much. The Court could also order KDL to pay Mr Arnautovic's costs if it was ultimately found that the examination summons was obtained without reasonable cause: s 597B.
90 The primary judge's conclusion that the exercise of the s 596A power in this case involved a substantial intrusion into the liquidation appears to have been based on a presumption or inference that the examination of any liquidator in the course of the conduct of a liquidation would necessarily involve a substantial intrusion into the liquidation. That assumption or presumption appears to have been derived from her Honour's analysis of the authorities concerning the special position of liquidators, particularly the authorities concerning other statutory powers that permit inquiries into the conduct of liquidators, such as s 536 the Corporations Act.
91 There are, however, dangers inherent in transposing the general statements in those authorities to the entirely different statutory context of s 596A. That is particularly so given the significant differences between the power to order an inquiry under s 536, and the power to issue an examination summons under s 596A.
92 The Court's power to order an inquiry under s 536 into a liquidator's performance of his or her duties is discretionary. The discretion is only enlivened if it appears to the Court that the liquidator has not faithfully performed or is not faithfully performing his or her duties, or has not observed or is not observing a requirement of the Court or the Corporations Act, or a complaint is made to the Court or ASIC concerning the conduct of the liquidator in connection with the performance of his or her duties. Important also is the fact that, once the discretion is exercised, the Court is given very wide powers. The Court may "take such action as it thinks fit", which might include making orders that affect the substantive rights of the liquidator. It is perhaps not surprising, in those circumstances, that the authorities suggest that the Court should exercise restraint in ordering such an inquiry lest it unduly interfere in the liquidator's conduct of the winding up.
93 In contrast to s 536, the issue of a summons under s 596A is mandatory once the essentially formal criteria are satisfied. It is also tolerably clear that, by virtue of the definitions of "officer" and "examinable affairs", the statutory scheme envisages that a liquidator can be summonsed to be examined about an act or thing done on behalf of the company when the company is being wound up. The statutory scheme for examinations does not treat a liquidator differently to any other officer who might be subject to an examination. Important also is that an examination itself cannot affect or alter the substantive rights of the examinee.
94 Given these important differences, the authorities concerning s 536 and like provisions do not provide any real support for a presumption or inference that an examination of a liquidator pursuant to a s 596A examination summons would necessarily involve a substantial intrusion into the liquidation, or would otherwise be unfairly burdensome or oppressive, such that it might constitute an abuse of process. Nor was the evidence before the primary judge capable of supporting a finding that the examination of Mr Arnautovic in fact involved a substantial intrusion into the liquidation of KDC such as to constitute the sort of oppression or unfairness which could amount to an abuse of process.
95 The primary judge's conclusion that the examination of Mr Arnautovic under s 596A was an abuse of process because it was not justified is also problematic. That is so for a number of reasons.
96 First, the primary judge's finding that an examination under s 596A requires justification was again derived primarily from the authorities concerning s 536 and like provisions of the Corporations Act. Those authorities, however, do not support the broad proposition that the examination of a liquidator pursuant to s 596A should be stayed if the possible results of the examination do not justify the examination. That is particularly the case if, by "possible results", what is meant is that the examination may disclose a cause of action which may in turn result in a financial advantage to the company, its creditors or contributories.
97 As already indicated, there are difficulties in transposing the observations made in the authorities concerning s 536 and like provisions into the different statutory context of s 596A. On the one hand, s 536 is discretionary and the discretion is only enlivened if the Court is satisfied that the liquidator has not been faithfully performing his or her duties. Section 596A, on the other hand, is mandatory and the express criteria that must be satisfied do not include any requirement that it be demonstrated that the possible results of the examination justify the issue of a summons to a liquidator or any other officer.
98 Section 596A also does not discriminate between, or provide different criteria, in respect of different officers. It does not, in terms, provide that the power to examine a liquidator pursuant to s 596A is limited to circumstances where the Court can be satisfied that the possible results of the examination justify the exercise of the otherwise mandatory power. A provision conferring a broad power on the Court should generally not be read down by making implications or imposing limitations which are not found in the express words: The Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc [1994] HCA 54; (1994) 181 CLR 404 at 421; Wong v Silkfield Pty Limited [1999] HCA 48; (1999) 199 CLR 255 at [11]. The authorities in relation to other materially different statutory provisions do not provide a sound basis for reading an additional criterion or limitation into s 596A when the proposed examinee is a liquidator.
99 Second, the reasoning of the primary judge appears to be based on the premise that the purpose of s 596A, being to benefit the company, its creditors, members or the public, can only be fulfilled if there is "reason to believe", or there is a "realistic prospect", that the examination will reveal conduct capable of supporting a claim and therefore have "practical utility". That premise is not supported by the terms of s 596A or the statutory scheme for examinations.
100 While it may be accepted, in a broad sense, that the overarching purpose of an examination under s 596A must be to benefit the corporation, its creditors, members or interested members of the public generally (cf. Evans v Wainter at [143], [248], [252]), it does not necessarily follow that an examination summons issued under s 596A can be discharged or stayed as an abuse of process simply because the Court cannot be satisfied, on the evidence then available, that there is a reasonable or realistic prospect that the end result of the process will be the disclosure of a viable claim against the examinee or another person. The primary judge's reasoning appears to have ascribed an overly narrow meaning to the benefit of the company, its shareholders and contributories. More significantly, it appears to have confused or conflated the purpose for which an examination summons is sought with the possible outcome of the process.
101 There could be little doubt that an examination summons can be discharged or stayed as an abuse of process if it is found that the eligible applicant's predominant purpose in obtaining the examination summons was to secure a private benefit or advantage, as opposed to a benefit for the company, its creditors or contributories: Evans v Wainter at [247]. Thus, for example, if an eligible applicant obtained an examination summons for the purpose of securing a benefit for itself in other litigation, not involving the company, that purpose would be "offensive", such that the summons could be stayed as an abuse: Evans v Wainter at [140], [143] and [252] (proposition 8). Such a summons could not be of any benefit to the company, its members or creditors. It is worth pausing, at this juncture, to note again that Mr Arnautovic did not allege, nor did the primary judge find, that KDL's purpose in obtaining the summons was to secure a private benefit, or was otherwise offensive or illegitimate, in the sense of being foreign to the purpose of s 596A.
102 The fact that an examination summons can be stayed as an abuse of process if it is found that the eligible applicant had a private purpose in conducting the examination does not mean that a summons can be stayed as an abuse simply because the Court is not satisfied, on the evidence available at that stage, that there are reasonable prospects that the examination will reveal wrongdoing on the part of the examinee, or will otherwise disclose a viable cause of action which may benefit the company. That would ignore the fact that an examination summons under s 596A is essentially an information gathering process.
103 It would be entirely proper for an eligible applicant to apply for and obtain an examination summons under s 596A for the purpose of obtaining information concerning legitimate issues, or to obtain answers to legitimate questions, which relate to the management of the company, including while it is in the process of being wound up. That would be the case even if, at that stage, the information that was available to the eligible applicant was not such that it could be said that the applicant had an arguable case, or that the examination was likely to reveal conduct capable of supporting a claim. The obtaining of answers to otherwise unanswered questions, or the quelling of a perceived controversy concerning the management of a company can, in a broad sense, be regarded as amounting to a benefit to the company, its creditors or contributories, and as therefore fulfilling a purpose of s 596A. An examination that achieves nothing more than that may still reasonably be regarded as having some practical utility. It would not necessarily be an abuse of process.
104 The position may be different if the examinee is able to demonstrate that the controversy, or the perceived controversy, or the unanswered questions, do not genuinely relate to or arise from the examinable affairs of the company, or are otherwise speculative, far-fetched or misconceived. In such circumstances, it could well be concluded that the examination was an abuse of process. The use of the examination process for such a purpose could rightly be found to be vexatious or oppressive and to bring the administration of justice into disrepute. The "heavy" onus of demonstrating this rests on the party seeking to stay the summons. As explained in more detail below, the evidence adduced by Mr Arnautovic was not capable of discharging this heavy onus.
105 Third, it would appear from the primary judge's reasoning that, in considering whether the examination summons was justified, or had practical utility, her Honour reversed the onus of proof. Her Honour effectively required KDL to justify the practical utility of examining Mr Arnautovic, and to do so by pointing to evidence that demonstrated that there was a "reason to believe", or that there was a "reasonable prospect", that there was an available action against Mr Arnautovic.
106 The primary judge did not consider whether the evidence led, or relied upon, by Mr Arnautovic demonstrated that the information sought by KDL, or the potential controversy identified by KDL in its application to ASIC for eligible applicant status, was speculative, far-fetched, misconceived or vexatious. Rather, the primary judge focussed on what her Honour considered to be deficiencies or gaps in the evidence or facts relied on by KDL. Her Honour pointed out there was no "positive evidence" of misconduct or default by Mr Arnautovic, and that the facts relied on by KDL (being primarily the material provided to ASIC) did not address various matters that her Honour considered were relevant to Mr Arnautovic's decision to disclaim the mine: Judgment at [66], [70]-[73]. This led her Honour to conclude that she was not satisfied that "the material relied upon by KDL provides reason to believe that the mandatory examination of the liquidator may provide a benefit to the company, its creditors, its members or the public generally" (emphasis added): Judgment at [74].
107 The difficulty with this reasoning, in addition to the fact that it appears to have reversed the onus, is that the main purpose of the examination of Mr Arnautovic was to explore and obtain information about the very facts and matters that the primary judge considered were missing from the evidence. In its application to ASIC, KDL had pointed to certain facts that it was aware of in relation to the potential value of the Ellendale mine and the sales process with which Mr Arnautovic was involved. It provided ASIC with correspondence that indicated that it had asked Mr Arnautovic, through his lawyers, certain questions concerning the sales process and that those questions mostly remained unanswered, or not fully answered. There was nothing to suggest that those questions were speculative, far-fetched, misconceived or vexatious. The purpose of the examination was, amongst other things, to seek answers to those unanswered questions and to otherwise explore whether there had been any misconduct, default or breach of duty by Mr Arnautovic. In short, the primary judge effectively required KDL to lead evidence concerning the very matters that it wanted to ascertain from the examination.
108 This was not, as Mr Arnautovic submitted, a case where, because he had adduced certain evidence concerning the sales process, the evidential burden shifted to KDL to prove that the examination was justified or had practical utility. That submission presupposes that the question for determination by the primary judge was whether KDL had a reasonably arguable case, which might be advanced by the examination, that Mr Arnautovic might have breached his duties as a liquidator in respect of the sales process and disclaimer of the Ellendale mine. That was not the relevant question. The question was whether the examination was an abuse of process. The burden of proving an abuse of process remained with Mr Arnautovic at all times. KDL did not bear the onus, evidential or legal, of justifying the examination, or demonstrating a reasonably arguable case against Mr Arnautovic that might be advanced by the examination.
109 An approach which required an eligible applicant to justify the examination by pointing to evidence which effectively demonstrated an arguable case, in defence of a claim that a s 596A examination should be stayed as an abuse of process, is contrary to the statutory scheme. The examination in question was a mandatory examination under s 596A, not a discretionary examination under s 596B. To obtain the examination summons, KDL was not required to satisfy the Court that Mr Arnautovic had been guilty of misconduct, or may be able to give information about the examinable affairs of KDC, as would be the case if the application was made under s 596B. The approach advocated by Mr Arnautovic would effectively require the Court, under the guise of an application for a stay on the basis of an abuse of process, to conduct a mini-trial into the possible end result of the examination at a stage when the available information and evidence was not complete. That would unduly stultify the operation of s 596A.
110 None of the foregoing analysis should be taken as derogating from the general principle of judicial restraint in relation to actions that might unduly interfere with the exercise by liquidators of their statutory powers, in particular in the context of s 536 of the Corporations Act and like provisions. There could be little doubt that those principles must, to a certain extent, be borne in mind when an application is made to discharge or stay an examination summons issued to a liquidator under s 596A. KDL's submission that these principles were an irrelevant consideration must accordingly be rejected. It must, however, equally be borne in mind that s 596A is part of a different statutory scheme. That scheme expressly envisages that an eligible applicant may examine a liquidator about acts done by or on behalf of a company at a time when the company is being wound up, without having to demonstrate that the liquidator may have been guilty of misconduct. Equally, it must be borne in mind that the person who seeks to discharge or stay such an examination on the basis that it is an abuse of process bears a heavy onus, and that the power to permanently stay a process such as an examination summons should be exercised with some caution and only in exceptional or extreme cases.
111 Fourth, and finally, having regard to the statutory scheme and the nature of the particular process under challenge, and having regard to the relevant principles concerning abuse of process, it cannot be concluded that Mr Arnautovic discharged the heavy onus required to prove an abuse of process. In summary, and at the risk of repetition, the evidence did not reveal any improper or illegitimate purpose on the part of KDL in obtaining the examination summons. Nor was the evidence capable of demonstrating that the summons was unfairly burdensome or oppressive to Mr Arnautovic. To the extent that justification, or the utility of the examination, was in issue, the questions and concerns raised by KDL concerning the sales process had not been fully answered by Mr Arnautovic. It could not reasonably be concluded, on the available evidence, that the questions raised by KDL concerning the sales process did not relate to the examinable affairs of KDC, or were otherwise speculative, far-fetched, misconceived or vexatious. They were apparently sufficient to satisfy ASIC that KDL should be authorised as an eligible applicant. Mr Arnautovic did not demonstrate that the material that KDL provided to ASIC was in any respect incorrect, incomplete or otherwise misleading. Nor did he seek to impugn ASIC's decision in any way.