McCann (in his capacity as liquidator of Australvic Property Management Pty Ltd (in liq)) v Mason

REASONS FOR JUDGMENT 1 Mr McCann is the liquidator of Australvic Property Management Pty Ltd (in liquidation). On 13 October 2008 Mr McCann obtained an order under s 596B of the Corporations Act 2001 (Cth) that Mr Mason be summonsed to be examined about the affairs of Australvic and to produce documents at that examination. Mr Mason brought two applications. The first, made pursuant to s 596C, was to obtain access to the affidavit relied upon by Mr McCann to support his 596B application. The second was to have the examination summons discharged. During the course of the hearing, I directed that Mr Mason be permitted to inspect the affidavit after certain deletions had been made. Shortly after the hearing Mr Mason's application to set aside the examination summons was dismissed. What follows are my reasons. 2 The basis of the application to set aside the examination summons was as follows. Australvic was the registered proprietor of property situated in Oakleigh, Victoria. Perpetual Trustee Company Ltd and Wanstrow Pty Limited each held a mortgage over the property. Following a default under the first mortgage, Perpetual Trustee took possession of the property and sold it by public auction. The net proceeds of sale (after deducting the amounts due to both mortgagees) were $1,410,044.13. Several parties, including Australvic, claim to be entitled to this sum. On 13 September 2007 Australvic issued proceedings in the Supreme Court of Victoria to assert its title to the proceeds. The defendants, one of which is Caveat Finance Pty Ltd (in liquidation), are the other claimants. Perpetual Trustee paid the net proceeds into the Supreme Court pending the resolution of the competing claims to the fund. 3 Following his appointment, Mr McCann took over the conduct of the Supreme Court action. Mr Mason, who is a director of Caveat, says it is "most likely" he will be called by Caveat to give evidence at the trial of the action. He asserts that the reason Mr McCann obtained the summons was to conduct an enquiry principally for the purpose of prosecuting the Supreme Court action. 4 Mr McCann disputes this allegation. He deposed that the purpose of the examination is to investigate whether Mr Kyriackou, a former director of Australvic, has breached any fiduciary duties he owed the company. Mr McCann's concern is that a considerable amount of the money that was advanced by Caveat to Australvic under five loan agreements made between November 2006 and February 2007 appears to have found its way into the hands of Mr Kyriakou. Mr McCann says he has been unable to properly investigate the matter because there is a "conspicuous lack of documentation and information" and he has received no assistance from Mr Kyriakou. 5 The relevant legal principles are not in doubt. An examination summons will be discharged if it is oppressive, unfair, an abuse of process or has been issued for an improper purpose: Sent v Andrews (2002) 6 VR 317, 320; Re Southland Coal Pty Ltd (2005) 189 FLR 297, 303. An examination summons will not be oppressive, unfair, an abuse of process or improper merely because there is on foot litigation between a liquidator (or the company in liquidation) and the proposed examinee. Thus, in Sent at 320, Buchanan JA said: "Where an examination relates to proposed or current litigation, in general terms the question is 'whether the examination is genuinely for the information of the liquidator to aid him in considering whether there is a cause of action upon which he will proceed …" In Re Southland Coal at 302-303, Young CJ in Eq said: "It is clear that it is no basic objection to the issue of an examination summons on the ground of oppression that the liquidator may ascertain the strength of the case of a person with whom the company is involved in litigation". 6 On the other hand, a liquidator is "not entitled to conduct a dress rehearsal of the cross-examination in an action or to seek to damage the opposing parties case by attacking the credibility of that party's witness": Sent at 320; see also Re Hugh J Roberts Pty Ltd (1970) 91 WN (NSW) 537. In Hamilton v Oades (1989) 166 CLR 486, 498, Mason CJ put it this way: "[I]f a liquidator were to conduct an examination directed to compel the examinee to disclose defences or to give pre-trial discovery, or to establish guilt, this examination may be restrained as an abuse of process". It is not, however, enough that "there is a chance that this will occur": Re Southland Coal at 303. 7 It is clear that the examination summons was sought to assist Mr McCann in investigating whether there has been a breach of duty by Mr Kyriakou. Mr McCann is not seeking to conduct a dress rehearsal of a possible cross-examination of Mr Mason. I accept that, during the course of the examination, Mr McCann may uncover information that will be of assistance in the Supreme Court proceeding. That, however, is not a sufficient reason to discharge the examination summons. 8 Nonetheless, to safeguard against any improper use of the examination procedure, it was ordered that: (a) the examination of Mr Mason be limited to eliciting information in relation to whether Mr Kyriackou has breached any duties he owed to Australvic; and (b) the evidence given by Mr Mason must not be used in the Supreme Court proceeding without leave of the court. 9 I should say something about the s 596C application. The starting point is that an affidavit filed in support of an application for an examination summons is sealed: r 11.3(4) of the Corporation Rules. The reason for this rule is so that a liquidator need not disclose to a proposed examinee the matters upon which the liquidator wish to examine, thereby defeating the purpose of the examination: Re Normans Wines Ltd (Receivers and Managers Appointed) (in liq); Harvey v Burfield (2004) 88 SASR 541, 555. Mr Mason inspected the affidavit, after certain deletions had been made. The effect of the deletions meant that Mr Mason was not in a position to know the questions Mr McCann proposed to ask during the examination. 10 As each party had a measure of success there was an order that the costs lie where they fall. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.