HIS HONOUR: Before the Court are two interlocutory applications for orders in connection with examinations presently to take place next week, pursuant to (CTH) Corporations Act 2001, s 596A and s 596B, in connection with the affairs of the company Brentwood Village Ltd (in liquidation).
There are also pending in the Federal Court of Australia proceedings brought by the company in liquidation and its liquidators against Terrigal Governor Lodge Pty Ltd ("TGL"), ACN 153 892 436 Pty Ltd ("ACN"), John Gerard Klumper, Paul-Alexander John Klumper, and Veronica Klumper-Peters. The Court has been informed, although I do not know that the evidence establishes, that there are approximately 24 examinations to be conducted. The status of those proceedings is that categories of discovery had been agreed, documents have been produced by way of discovery, and on 24 June 2015 orders were made for the plaintiffs to serve their evidence by 6 August 2015. The proceedings are next listed for directions on 20 August 2015. Notably, there does not appear yet to be any direction for the defendants to adduce evidence by a particular date.
In one of the present applications, TGL and Veronica Klumper-Peters, both of them defendants in the Federal Court proceedings, seek a direction under Corporations Act, s 596F(1)(a) and/or (1)(b), that examinations of four examinees, namely Veronica Klumper-Peters, Andrew Skyring, Brian Milton and David Balog be limited to matters that do not relate to the matters the subject of the Federal Court proceedings. Each of the nominated examinees is, to a varying degree of likelihood, a prospective witness in the Federal Court proceedings, Ms Klumper-Peters being almost certainly such a witness and the others of varying likelihood. In addition, those applicants seek a direction giving them leave to appear at the public examinations for the purpose of objecting to questions put to the examinees that may be in breach of that direction. Alternatively, in the short minutes that they hand up, they seek leave to appear at the public examinations for the purpose of objecting to questions that might give rise to injustice in the Federal Court proceedings or constitute an abuse of process.
Meteyard v Love [2015] NSWSC 1342 | Case summary | Zoe
In the other application, Paul-Alexander John Klumper, also a defendant in the Federal Court proceedings, seeks an order setting aside the examination summons issued to him, an order setting aside the summons issued to Andrew Skyring, and alternatively similar directions limiting their examinations to matters not the subject of the Federal Court proceedings, orders setting aside orders for production made against Mr Klumper, ACN and Mr Skyring, and such other orders as the Court deems fit.
In support of the second application, but not the first, it was contended that the proposed examinations were an abuse of the examination power because they appeared to be, at least, an attempt to canvass the strengths or weaknesses of the corporation's case in relation to the Federal Court proceedings.
For reasons which I gave in In the matter of Mustang Marine Australia Services Pty Ltd [2014] NSWSC 136, 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. If the examination covers matters relevant to the Federal Court proceedings for the purpose of obtaining admissions or other evidence that the liquidator can then adduce pursuant to the direction that the liquidator file his evidence by a certain date, then, as it seems to me, that is a perfectly permissible use of the examination process.
It is true, as Mr Thomson mentioned, that in Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36; 224 ALR 588; 56 ACSR 487, in a passage that I referred to in Mustang Marine (at [7]), Basten JA, with whose judgment the other members of the Court agreed, said (at [44]) that the authorities drew a line between those possible topics of inquiry - referring to whether the defendant has sufficient assets to meet an adverse judgment if unsuccessful in the litigation and also, where a claim has been made, to the decision with respect to the claim and where a claim has not been determined, the potential value of a claim - 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. However, as I sought to demonstrate in Mustang Marine, what his Honour said in that passage needs to be understood in the context of what preceded it and the authorities on which his Honour's observation was founded. It is clear on those authorities that it has always been regarded as permissible for a liquidator, before commencing proceedings, to gather information, including through examinations, in order to make a decision whether or not to commence proceedings. In particular, that means forming a judgment as to the strength or prospects of success of those proceedings, and the availability of viable defences to them and the strength of those defences. It can make no difference to the scope of the power under s 596A and s 596B that proceedings have already been instituted. Courts have said from time to time that the significance of the fact that proceedings have been commenced to which an examination may relate is not to change the nature of the permissible scope of the inquiry, but to require the Court to proceed with greater caution on that account. In Re Rothwell Ltd (provisional liquidator appointed) (1989) 7 ACLC 576; 15 ACLR 168, Nicholson J observed (at 181) that:
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.
One of the purposes of ss 596A and 596B is to give a liquidator the ability to gain information and evidence, having regard to the disabilities under which a liquidator typically languishes as a litigant. To the extent that that is a "forensic advantage", it is an entirely legitimate one.
When one sees the authorities to which Basten JA immediately referred - including the reference by Mullighan J in In the matter of Normans Wines Ltd (Receivers and Managers appointed) (in liq); Harvey v Burfield [2004] SASC 171 to the trial judge's statement that '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 - it becomes clear that the reference to determining any strength or weaknesses of the corporation's case or its opponents' case was, in context and in substance, a reference to testing the credibility of witnesses or undermining the credibility of potential witnesses, rather than merely gathering evidence and information relevant to forming an assessment as to the strength and weaknesses of the case.
On the evidence before me, there is simply no reason to suppose that the liquidator has any purpose beyond the legitimate purpose of gathering evidence and information which the liquidator can use by way of admissions or otherwise to prove the liquidator's case in the Federal Court proceedings.
Accordingly, insofar as the proposed limitations sought in the first application and the setting aside of the summons sought in the second application rely on the proposition that the conduct of the examinations would be, to that extent, an abuse of process, I am unsatisfied that that has been established. There is no reason to limit the liquidator's examination to matters not the subject of the Federal Court proceedings.
That then leaves the question as to whether the applicants should be granted leave to be present at the examination and to take objection to questions that might amount to an abuse of process before the judicial officer conducting the examinations.
Corporations Act, s 596F, provides that, subject to s 597, the Court may, at any time, give a direction about the procedure to be followed at an examination. It also provides that in the case of a private examination, the Court can give a direction about who may be present at a public examination and a direction that a person be excluded. Under s 597(5A), ASIC and any other eligible applicant in relation to the corporation may take part in the examination and be represented. Under s 597(16), an examinee may employ a solicitor and/or counsel who may, in effect, re-examine the person. That said, it is the usual practice that the solicitor or counsel for the examinee is permitted not only to re-examine, but also to object to questions asked of the examinee.
In my view, Mr Braham SC is correct in submitting that the particularisation in s 597(5A) of those who may take part in an examination, and in s 597(16) of the entitlement of an examinee to be represented, do not confine the powers in s 596F to give a direction about the procedure to be followed. The purpose of s 596F is to give the Court wide powers in respect of an examination, including in order to protect the interests of those who may be affected by it. I accept that under that section, a direction of the type proposed about an interested person being represented at the examination could, in an appropriate case, be made.
Ordinarily, the mere fact that evidence might emerge in the examination adverse to a person would not be sufficient grounds to do that. Such a person may have an "interest" in the information elicited, and can sit in the public examination and hear it, but does not have an interest in the manner in which the examination is conducted.
However, where there is potential for the manner of conduct of the examination to impinge on the rights of another party, the position is otherwise. In such a case, the interests of that other party can appropriately be protected by granting leave to be represented for the limited purpose of objecting to the course of the examination, if it is thought to become an abuse of process.
The fact that the Federal Court proceedings are on foot, and that the proposed examinees are parties to all potential witnesses in them is, as I have said, a reason for the exercise of greater caution in the exercise of the examination power, and persuades me that it is appropriate in the circumstances of this case to direct that the applicants may be represented during the examinations in question for the limited purpose of objecting to questions on the ground that those questions are an abuse of process.
The judicial officer conducting the examination would have power under s 596F to give that direction, and ordinarily it would be appropriate to make such an application to that judicial officer, but I accept that because this is an unusual application, perhaps without precedent, it was appropriately made in the first instance to the Court. However, the judicial officer conducting the examination should be at liberty to revoke the leave as it had been granted by that judicial officer and not by a judge of the Court.
An additional question arises on the second interlocutory process, concerning the examination summons addressed to Paul-Alexander John Klumper, which on its face has been issued under Corporations Act, s 596A, which provides for mandatory examination of a person who is an officer of the corporation or was such an officer relevantly during or after the two years ending when the winding up began.
The evidence establishes that Mr Klumper, though he was once an officer, has not been an officer during the period referred to in s 596A, and accordingly was not liable to mandatory examination under that section. It may very well be that he would be liable to discretionary examination under s 596B, and the Court is informed that the application was made in the alternative on that basis, but, on the face of the summons, the issuing registrar acted under s 596A and regarded it as a mandatory examination, and, on the evidence before me, was in error in doing so.
On that basis, there has not been a proper exercise of the discretion required by s 596B, and the examination summons ought to be set aside. However, I will grant leave to the liquidator to apply for the issue of a summons under s 596B, together with an abridgment of time so that it would be returnable when the s 596A summons would otherwise have been returnable. Whether such summons is issued will depend, of course, on whether the evidence adduced in support of the s 596B application makes a case for discretionary examination, but in the ordinary course I do not think that the proposed examinee is entitled to be heard on that question.
Accordingly, on the interlocutory process filed by Terrigal Governor Lodge Pty Ltd and Veronica Klumper-Peters, the Court orders that:
1. pursuant to Corporations Act, s 596F(1)(a) and (c), Terrigal Governor Lodge Pty Ltd and Veronica Klumper-Peters may be present at, and may be represented before the examiner at, the examinations of Veronica Klumper-Peters, Andrew Skyring, Brian Milton and David Balog ("the examinees"), for the limited purpose of objecting to questions put to those examinees on the grounds that those questions constitute an abuse of process;
2. the examining registrar may revoke direction 1 as if that direction had been made by the examining registrar and not by a judge of the Court;
3. the interlocutory process be otherwise dismissed.
On the interlocutory process filed by Paul Alexander John Klumper and ACN 153 89 2436 Pty Ltd, the Court orders that:
1. The summons for the examination of Paul-Alexander John Klumper dated 15 June 2015 and returnable on 30 July 2015 be set aside;
2. pursuant to Corporations Act, s 596F, Paul-Alexander John Klumper and ACN 153 89 2436 Pty Ltd may be present and represented at the examinations of the said Paul-Alexander John Klumper and Andrew Skyring ("the examinees"), for the limited purpose of objecting to questions asked of those examinees on the ground that they are an abuse of process;
3. the registrar conducting the examination may revoke direction 2 as if that direction were made by the registrar and not by a judge of the Court;
4. the interlocutory process be otherwise dismissed.
[3]
Costs
In my view, both applicants have achieved a measure of success, but a measure of success that falls far short of what they actually sought in their interlocutory applications. Had their interlocutory applications been limited to the relief they sought, their entitlement to have costs would have been incontestable. The fact that offers had been made before instituting the application to accept something less than what was ultimately sought is of limited significance when, once the application is made, significantly more was sought.
The proper outcome in the circumstances is that in respect of both applications, there be no order as to costs, to the intent that each party bear its own costs.
[4]
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Decision last updated: 11 September 2015