Malone v Wainter Pty Ltd; In the Matter of New Tel Limited

REASONS FOR JUDGMENT ON APPLICATION FOR LEAVE TO EXTEND TIME AND FOR LEAVE TO APPEAL Introduction 1 On 4 March 2004, the District Registrar of the Federal Court at Perth ordered that summonses issue under s 596A of the Corporations Act 2001 to Peter Francis Malone and Paul Dominic Evans for their examination on oath or affirmation about the examinable affairs of New Tel Limited (In Liq). He also ordered a summons for examination issue under s 596B for the examination of David Woolfe. The summonses were issued on the application of Wainter Pty Ltd (Wainter). 2 Applications to discharge the summonses were made under r 11.5 of the Federal Court (Corporations) Rules by each of the persons to whom they were issued. Nicholson J dismissed each of the applications on 6 August 2004 - Wainter Pty Ltd, In the Matter of New Tel Limited (In Liq) [2004] FCA 1021. Messrs Evans and Woolfe subsequently applied to the Court for leave to appeal against the decision of Nicholson J. Wainter consented to the grant of leave and expedited appeals in both of those matters are listed for hearing by the Full Court on 12 November 2004 in Perth. 3 On 1 October 2004, Mr Malone filed an application seeking the following orders: '1. That the time within which to appeal from a judgment of the Honourable Justice RD Nicholson of the Western Australian District Registry of the Federal Court of Australia given on 6 August 2004 at Perth be extended until two clear days after the disposition of the within application. 2. The Applicant pay the Respondent's costs of this application for extension of time in any event.' The Proposed Grounds of Appeal 4 The grounds of the proposed appeal are as set out in a Notice of Appeal exhibited to the affidavit of Mr Malone, filed on 1 October 2004. They focus upon the purpose of the proposed examination which is said to involve advancing claims that Wainter may wish to bring outside the framework of the liquidation. The grounds are in the following terms: '1. His Honour erred in law in failing to have regard to the purpose or alternatively the predominant purpose of Wainter Pty Ltd in determining whether the proposed examinations to be carried by Wainter Pty Ltd were an abuse of process. (sic) 2. His Honour erred in law in failing to make any finding as to the purpose or alternatively, the predominant purpose of Wainter Pty Ltd in proposing to conduct the examination. 3. The learned Trial Judged (sic) erred in law in holding that the applicable test as to whether the proposed examination was an abuse of process was whether the proposed examination had the potential to benefit New Tel Limited and/or its creditors. 4. His Honour erred in law in determining that if the applicable test was whether the proposed examination had the potential to benefit New Tel Limited and its creditors, such test was satisfied in circumstances where the Liquidators of New Tel Limited could gain access to the information derived from the examination to facilitate investigation into New Tel Limited's financial position and the possibility of action against New Tel Limited's directors including the Appellant for insolvent trading. 5. The learned Trial Judge erred in law in determining that if the applicable test to determine whether the proposed examinations were an abuse of process was whether the proposed examinations had the potential to benefit New Tel Limited and its creditors, the Appellant bore an onus of proving that there was no benefit to New Tel Limited or its creditors to be derived from the proposed examination rather than the Applicant (sic) establishing benefit. 6. The learned Trial Judge erred in law in determining that in the event that the applicable test in determining whether the proposed examination was an abuse of process was whether the proposed examination had the potential to benefit New Tel Limited and its creditors there were in the circumstances of the within application any benefit to New Tel Limited or its creditors arising from the proposed examination by the Respondent.' Statutory Framework 5 The issue of the summonses by the Registrar, which was the subject of the discharge applications before Nicholson J, was done pursuant to ss 596A and 596B of the Corporations Act. Those provisions are to be found in Chapter 5 of the Act relating to external administration. Part 5.9 of Chapter 5 comprises ss 596A to 600F. Division 1, which comprises ss 596A to 597B, is entitled 'Examining a person about a corporation'. 6 Section 596A provides: 'The Court is to 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 is an examinable officer of the corporation or was such an officer during or after the 2 years ending: (i) if the corporation is under administration - on the section 513C day in relation to the administration; or ... (iii) if the corporation is being, or has been, wound up - when the winding up began; or (iv) otherwise - when the application is made.' 7 Section 596B deals with discretionary examination. It provides: '(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. (2) This section has effect subject to section 596A.' 8 The term 'eligible applicant' is defined in s 9 of the Act: 'eligible applicant, in relation to a corporation means: (a) ASIC; or (b) a liquidator or provisional liquidator of the corporation; or (c) an administrator of the corporation; or (d) an administrator of a deed of company arrangement executed by the corporation; or (e) a person authorised in writing by ASIC to make: (i) applications under the Division of Part 5.9 in which the expression occurs; or (ii) such an application in relation to the corporation.' The term 'examinable officer' is also defined in s 9 and includes a director, secretary or executive officer of the corporation. 9 Rule 11.3 of the Corporations Law Rules of the Federal Court provides for applications for examination summonses under ss 596A and 596B. Rule 11.3(1) provides: 'An application for the issue of an examination summons must be made by filing an interlocutory process or an originating process, as the case requires.' The reference to originating process and interlocutory process refers back to r 2.2 which provides: '(1) Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court: (a) if the application is not made in a proceeding already commenced in the Court - by filing an originating process; and (b) in any other case - by filing an interlocutory process. (2) Unless the Court otherwise directs, a person may make an application to the Court in relation to a proceeding in respect of which final relief has been granted by filing an interlocutory process in that proceeding.' Rule 2.2(3) and 2.2(4) specify the forms to be used in originating and interlocutory processes respectively. 10 Rule 16 of the Corporations Law Rules deals with the powers of Registrars: '(1) For the purposes of paragraph 35A(1)(h) of the Federal Court of Australia Act 1976, if the Court or a Judge so directs, a Registrar may exercise a power of the Court: (a) under a provision of the Corporations Act mentioned in column 2, or a provision of these Rules mentioned in column 3, of an item in Part 1 of Schedule 2; or ... (2) A decision, direction or act of a Registrar made, given or done under these Rules, may be reviewed by the Court or a Judge. (3) An application for the review of a decision, direction or act of a Registrar made, given or done under these Rules, must be made within: (a) 21 days after the decision, direction or act complained of; or (b) any further time allowed by the Court. 16.2(1) If a proceeding before a Registrar appears to the Registrar to be proper for the decision of the Court or a Judge, the Registrar may or, if required by a party to the proceeding, must, refer the matter to the Court or a Judge. (2) If the Registrar refers a matter to the Court or a Judge, the Court or a Judge may dispose of the matter or refer it back to the Registrar with any direction that the Court or the Judge considers appropriate.' Schedule 2 to the Rules lists the powers of the Court that may be exercised by a Registrar. Item 96 in that list refers, inter alia, to ss 596A and 596B and to r 11.3. 11 Section 35A of the Federal Court of Australia Act 1976 (Cth) provides for the delegation by a Judge of the Court of prescribed powers to a Registrar. It provides, inter alia: (1) Subject to sub-section (2), the following powers of the Court may, if the Court or a Judge so directs, be exercised by a Registrar: ... (h) a power of the Court prescribed by Rules of Court.' The exercise by a Registrar of delegated powers is subject to review (s 35A): '(5) A party to proceedings in which a Registrar has exercised any of the powers of the Court under sub-section (1) may, within the time prescribed by the Rules of Court, or within any further time allowed in accordance with the Rules of Court, apply to the court to review that exercise of power. (6) The Court may, on application under sub-section (5) or of its own motion, review an exercise of power by a Registrar pursuant to this section and may make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised.' 12 Rule 11.5 of the Corporations Law Rules provides for discharge of summonses for examination: '(1) This rule applies if a person is served with an examination summons. (2) Within 3 days after the person is served with the examination summons, the person may apply to the Court for an order discharging the summons by filing: (a) an interlocutory process seeking an order discharging the summons; and (b) an affidavit stating the facts in support of the interlocutory process. (3) As soon as practicable after filing the interlocutory process seeking the order and the supporting affidavit, the person must serve a copy of the interlocutory process and the supporting affidavit on: (a) the person who applied for the examination; and (b) unless that person is the Commission or a person authorised by the Commission - the Commission.' 13 Despite its terms the present application was argued upon the assumption that leave is necessary to appeal against the decision of Nicholson J. Reference should therefore be made to the provisions of s 24 of the Federal Court Act which defines the appellate jurisdiction of the Court. Section 24(1) provides, inter alia, that the Court has jurisdiction to hear and determine appeals from judgments of the Court constituted by a single judge. Section 24(1A) provides: 'An appeal shall not be brought from a judgment referred to in sub-section (1) that is an interlocutory judgment unless the Court or a Judge gives leave to appeal.' 14 In the case of applications for leave to appeal from interlocutory judgments of the Court, O 52 r 10(2)(b) requires the application to be '... filed and served within 7 days from the pronouncement of the interlocutory judgment from which leave to appeal is sought or within such further time as the Court or a Judge may allow'. In the case of an appeal without leave, O 52 r 15(1) requires the notice of appeal to be filed and served within 21 days after the date when the judgment appealed from was pronounced or within such further time as is allowed by the Court or a Judge upon application made by motion upon notice filed within the period of 21 days referred to. Order 52 r 15(2) provides: 'Notwithstanding anything in the preceding sub-rule, the Court or a Judge for special reasons may at any time give leave to file and serve a notice of appeal.' The Nature of the Proceedings 15 The application before the Registrar for the issue of summonses under ss 596A and 596B of the Corporations Act was by way of an originating process. 16 When issuing the summonses the District Registrar exercised a delegated power under s 35A of the Federal Court Act. It would have been possible for Messrs Malone, Evans and Woolfe to have applied, pursuant to s 34A(5), for a review of the District Registrar's decision by a judge. In the event they each applied, under r 11.5 and by way of 'interlocutory' application, for orders discharging the examination summonses. Those interlocutory applications were refused by Nicholson J in his judgment delivered on 6 August 2004 and it is in respect of those orders that Messrs Evans and Woolfe sought and obtained leave to appeal and in respect of which Mr Malone now seeks an extension of time within which to apply for leave to appeal. The Application to Extend Time - Evidence and Contentions 17 Mr Malone's application for an extension of time was filed on 1 October 2004. By the time that judgment was delivered he was not legally represented. As appears from the Court file on 6 July 2004 a notice, dated 25 June 2004, was filed by his solicitors, Cocks Macnish, giving notice to the Court that they had ceased to act for him. An affidavit in support of that notice sworn by a solicitor with the firm stated that Mr Malone had been informed, on 25 June 2004, that the Notice of Withdrawal of Solicitor would be filed in Court on 5 July 2004. As appears from the affidavit, a copy of the notice was personally served on Mr Malone on 25 June 2004. On 18 August 2004, twelve days after the delivery of the judgment by Nicholson J, Cocks Macnish filed a further notice that it had been reappointed to act for Mr Malone. 18 Mr Malone said in his affidavit that while unrepresented he was unable to assess whether or not he should appeal. He does not have legal qualifications and his energies were directed towards resolving matters to ensure that Cocks Macnish were reappointed as his solicitors. On 25 August 2004, he discovered for the first time, through Cocks Macnish, that Woolfe and Evans had sought leave to appeal against the judgment. 19 Mr Malone asked Cocks Macnish to advise whether or not he should apply for leave to appeal. His affidavit does not state when he first made that request. He does recall that he asked Mr Macnish to consider the matter on 1 September 2004 and that he received formal advice on 9 September. Mr Macnish did not recommend that he proceed with an appeal and informed him that should he proceed to seek leave to appeal his insurer might refuse to indemnify him for the costs of such an application or of the appeal. 20 Mr Malone remained 'concerned' about the matter and decided to obtain further advice. He spoke with Mr Sanders, a partner of Bennett & Co, who is a long-standing personal friend. He obtained copies of the papers and sent them to Bennett & Co in the week of 13 September 2004. He was first able to see Mr Bennett on the afternoon of 23 September 2004. Mr Bennett had then considered the judgment and the notice of appeal which had been filed on 6 September 2004 by Messrs Evans and Woolfe. Evidently, Mr Malone was informed by Mr Bennett that, on the grounds set out in the draft notice of appeal annexed to the affidavit, an appeal was reasonably arguable. Mr Malone said that he would undertake to take all necessary steps reasonably available to him to ensure that if he were granted leave to appeal his appeal was listed for hearing at the same time as those of Messrs Evans and Woolfe. A proposed notice of appeal was exhibited to Mr Malone's affidavit and it is not in dispute that the grounds in the notice are substantially the same as those relied upon by Messrs. Evans and Woolfe. 21 There was evidence on behalf of Wainter of steps taken, since the issue of the summons, to progress Mr Malone's examination. 22 Counsel submitted that Mr Malone was not personally at fault for the delay that had occurred. The time that elapsed between the latest date on which an application for leave to appeal could have been filed and the date on which the application for an extension of time was filed, was said to be just over one month. This seemed to be based on the assumption that the latest date for filing an application for leave was 21 days after the judgment. In fact if leave were necessary then an application for leave to appeal should have been filed within seven days of the judgment. If leave were not necessary then a notice of appeal should have been filed by 27 August 2004. It was submitted that the notice of appeal disclosed an arguable case in the grounds of appeal going to errors of law. It was also submitted that there would be no prejudice suffered by Wainter given that Messrs Woolfe and Evans had been given leave to appeal, the grounds of appeal were similar and that Mr Malone would take all necessary steps to ensure that his appeal could be heard at the same time as the hearing of the appeals by Messrs. Woolfe and Evans. 23 Counsel for Wainter submitted that in order for the Court to exercise its discretion to extend time for an application for leave to appeal it would be necessary for Mr Malone to demonstrate 'special reasons' as is required for extensions of time to appeal within which to file a notice of appeal pursuant to O 52 r 15(2). Reference was made to Deighton v Telstra Corporation Ltd (unrep, Full Fed Court, 17 October 1997) at p 4. The primary considerations were said to be whether there was a likelihood that leave would be granted and the sufficiency of evidence offered in explanation of the delay. Counsel argued that Mr Malone had not adduced evidence of reasons for delay sufficient to have the Court exercise its discretion in his favour. The circumstances of his change in position had been inadequately explained. The arrangements for his examination had been progressing and in the course of that progress the Registrar had expressly observed that Mr Malone was not appealing. His solicitors, then Cocks Macnish, had not contradicted that observation. The Nature of the Judgment at First Instance 24 The application raises a question about the character of the judgment given by Nicholson J on 6 August. His Honour refused Mr Malone's application to discharge the summons issued by the District Registrar. The District Registrar's order was made pursuant to an originating process filed in the Court. The application for discharge before Nicholson J was designated as an 'interlocutory process' because r 11.5(2)(a) requires that it be so designated. 25 An application for the issue of a summons for examination is made in aid of an administrative investigative process. It is not ancillary to any proceeding pending in the Court. Such an application is properly regarded as an originating application and, within its narrow compass, the issue of a summons if ordered by a judge would arguably fall within the description of a judgment, other than an interlocutory judgment, for the purposes of s 24. Whether that be so or not, it would seem at least arguable that a decision discharging or refusing to discharge a summons has the character of a final judgment. 26 The question whether the judgment of Nicholson J was interlocutory was raised by the Court and was not the subject of any considered submissions by the parties. However, assuming for the purpose of this proceeding, that leave is necessary to bring an appeal against the judgment of Nicholson J, it is sufficient to say that I would have granted such leave if the application for it had been within time. The decision to issue the summons to Mr Malone and the refusal to discharge the summons subjected him to the obligation to submit to examination under the Act. That is not a trivial interference with his liberty. There are in the circumstances, arguable grounds of appeal, albeit there is evidently powerful authority from other appellate jurisdictions, referred to by Nicholson J, which lie against at least some of the propositions upon which Mr Malone would rely. Whether an Extension of Time Should be Granted 27 The question therefore reduces to whether an extension of time should be granted. In determining that question, I have regard to the following: 1. The order made to issue the summons for examination and the refusal to discharge the summons involves a degree of interference with the liberty of the subject in requiring Mr Malone to attend at court and be examined. 2. The delay was relatively modest, whether the judgment of Nicholson J is regarded as final or interlocutory. 3. The reasons for the delay involved a combination of the following factors: (i) A period during which Mr Malone was not legally represented and was unable to consider the prospects of an appeal. (ii) Initial advice that he should not appeal. (iii) A short delay while he sought alternative legal advice. 4. Wainter may be prejudiced to the extent that an examination was underway which will be delayed pending the hearing and determination of the appeal. 5. Wainter is unlikely to be prejudiced by reason of any delay in the hearing of the appeal as it is likely that the appeal will be able to be heard with the appeals in the related matters of Evans and Woolfe. 6. The grounds of appeal largely raise matters of law and the scope of any additional materials to be included in a supplementary appeal book by reason of the Malone appeal is unlikely to be great. 7. In the event that an extension of time is granted, Wainter can be partially compensated in respect of any costs thrown away in connection with the examination which would have proceeded but for the extension of time. 8. The grounds of appeal disclose an arguable case albeit there is authority referred to by Nicholson J which would seem to constitute an obstacle to the arguments advanced by the applicant. 28 The case for an extension of time is marginal. The relevant criterion for extending time is that there be special reasons for so doing. In my opinion the rather unusual combination of circumstances in this case and, in particular, the practical availability of a hearing of the appeal at the same time as related appeals by Messrs Evans and Woolfe, weigh in favour of the grant of an extension. No doubt it is correct that Mr Malone was inspired to appeal by the example set by the other parties. Much of the delay in this case is attributable to him making arrangements for legal advice and then a second opinion. There is little practical prejudice to Wainter. To the extent that they have wasted costs in connection with arrangements for examination under the summons issued to Mr Malone, then they can be compensated, at least in part, by an order that he pay their costs thrown away. The applicant concedes that they should have the costs of the application in any event. 29 For all of these reasons which, in my opinion, taken together, constitute special reasons for extending time, I will extend time and, if it be necessary to do so, give leave to appeal against the decision of Nicholson J. I will also make ancillary directions to ensure that Mr Malone is in a position to proceed with the appeal on 12 November 2004. Any directions as to the listing of this appeal of course are subject to the overriding discretion of the Chief Justice and of the Full Court which is hearing the related matters. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.