National Australia Bank Limited v Norman [2009] FCAFC 13 | Case summary

The applicants pay the first respondent's costs not including any counsel fee. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

THE COURT: 1 This is an application for leave to appeal from an order of a judge of this Court refusing to stay: (a) orders for the examination of an officer, Mr Mark Norstrom and a former officer, Mr Gary Sampson of the National Australia Bank Ltd (the Bank); and (b) orders for the production of books by those officers and the Bank; all of which were made by a Registrar of the Court pursuant to Part 5.9 of the Corporations Act 2001 (Cth) (the Act). An order is also sought that this Court stay the Registrar's orders. 2 On 8 September 2008 Mr Trevor Norman commenced a proceeding against the Executors and Trustees of the estate of Allan McFarlane seeking an order that Nicholas Cooper and Andre Strazdins be appointed joint and several liquidators of a managed investment scheme which had been operated by Mr McFarlane. Mr Norman asserted that he was a member of a "managed investment scheme" as that term is defined in s 9 of the Act. Mr Norman claimed that Mr Allan McFarlane had invited clients and associates to deposit funds into the "McFarlane's accountant's trust account" which was controlled by Mr McFarlane. He claimed Mr McFarlane had contravened s 601ED(5) which prohibits a person from operating a managed investment scheme which is required to be registered under s 601EB unless the managed investment scheme is so registered. He asserted that the managed investment scheme which had been operated by Mr McFarlane was of a kind that needed to be registered under s 601EB and Mr McFarlane's conduct was therefore in contravention of s 601ED(5). 3 Mr Allan McFarlane died in a motor vehicle accident on 16 June 2008. 4 On 3 September 2008 Mr Bruce Carter, Chartered Accountant and Liquidator was appointed to administer the estate of the deceased, Mr Allan McFarlane pursuant to s 244 of the Bankruptcy Act 1966 (Cth). 5 Section 601EE(1) of the Act provides that a member of the scheme may apply to the Court to have a scheme which has been operated in contravention of s 601ED(5) wound up. 6 On 28 November 2008 a judge of this Court made an order that the scheme operated by Mr McFarlane be wound up pursuant to s 601EE of the Act. 7 The primary judge appointed Mr Cooper and Mr Strazdins (the joint liquidators) to act as the joint and several liquidators of the scheme. 8 The managed investment scheme was identified in the primary judge's orders and part of the scheme was that members of the public invested moneys with Mr McFarlane who held it on trust in an account in the name of "McFarlane's Chartered Accountants Trust Account" at National Australia Bank Account, BSB 085005 account number 049097085. 9 The primary judge also made an order in the following terms: 6. Pursuant to s 601EE(2) of the Act, the winding up of the Scheme shall be conducted as if the Scheme were for the purposes of the Act a "company" and in acting as liquidators and administering the affairs of the Scheme the Liquidators shall have all the powers and responsibilities that a liquidator would have pursuant to the Corporations Act as if the Scheme were a company, with such modifications as are necessary. 10 The "Scheme property" was also defined in the orders: 7. Subject to the proviso expressed at the end of this Order, the scheme property of the Scheme ("the Scheme property") shall consist of: 7.1 the property and rights of each of the scheme investors in the Scheme; 7.2 any and all moneys in the Account; 7.3 any or all documents concerning the Account or its operation, or the making of payments by scheme investors; 7.4 any and all causes of action (or other rights) in relation to: 7.4.1 the Account, 7.4.2 the Scheme, 7.4.3 any payment made to or from the Account, or 7.4.4 scheme investors' participation in the Scheme; which are held by any one or more of the scheme investors as at the date of this order, whether jointly or severally; 11 The Bank did not appear at the hearing on 28 November 2008 although it did have notice of the hearing because the Bank attended a meeting of creditors convened by Mr Carter on 19 September 2008 at which it was revealed that Mr Norman had made the application for the winding up of the scheme. The Bank also received a "Circular to Creditors" dated 20 October 2008 from Ferrier Hodgson (the firm in which Mr Carter is a partner) which contained references to the possibility of a claim against the Bank. 12 On 19 December 2008 the joint liquidators applied to the Court for orders pursuant to s 596D and s 597(9) of the Act for Mr Norstrom and Mr Sampson to attend before the Court to be examined in respect of the examinable affairs of the scheme and to produce all books in their possession relevant to the examinable affairs of the scheme. The joint liquidators also sought an order that the Bank produce all books in its possession relevant to the examinable affairs of the scheme. Orders were also sought against other parties including Mr Andrew McFarlane, a son of the late Mr Allan McFarlane. 13 On 22 December 2008 Registrar Christie made orders that Mr Norstrom and Mr Sampson be summoned to attend before the Court on 6 February 2009 to be examined in respect of the examinable affairs of the scheme. She made similar orders directed to Mr Andrew McFarlane. She also made orders that they also produce all books in their possession relevant to the examinable affairs of the scheme. She also ordered the Bank, by its proper officer, to produce all books in the Bank's possession relevant to the examinable affairs of the scheme on the same day. 14 Paragraph 13 of the Registrar's orders required anyone to whom the order was directed to apply to set aside the order within three days of service of the order by interlocutory application accompanied by an affidavit setting out the matters upon which the person relied. That order reflects Rule 11.5(2) of the Federal Court (Corporations) Rules 2000 (the Corporation Rules). The rule requires a person who has been made the subject of an examination order to move swiftly. 15 On 23 December 2008 the summonses for the examination and for the production of books relevant to the examinable affairs of the scheme directed to Mr Norstrom and Mr Sampson, and Mr Andrew McFarlane issued. We were told by the parties that the books and records identified in the schedule to the summonses would be produced on 6 February 2009 and the examination of the examinees would take place at some future time. The summonses were served that day. 16 On 13 January 2009 the Bank applied by way of notice of motion for leave to inspect the affidavits relied upon by Mr Norman for his application which had culminated in the orders made by the primary judge on 28 November 2008. On 15 January 2009 the primary judge gave leave to the Bank to inspect and copy the affidavits in the proceeding. The notice of motion was otherwise stood over. 17 On 15 January 2009 the primary judge published his reasons for the orders which he made on 28 November 2008: Norman, in the matter of The Executors and Trustees of the Deceased Estate of McFarlane v McFarlane [2009] FCA 14. 18 On 19 January 2009 the Bank and Messrs Norstrom and Sampson (the applicants) made two separate applications. First, they filed an application for leave to appeal from the orders made by the primary judge on 28 November 2008. That application was made returnable on 27 January 2009. Secondly, they applied by way of notice of motion in the proceeding brought by Mr Norman (the second application) for the following orders: 1 That the orders of Justice Mansfield made on 28 November 2008 be set aside (pursuant to Order 35 rule 7(2)(a)), or alternatively varied. 2 That the summons for examination addressed to Mark Ivar Norstrom dated 23 December 2008 be discharged. 3 That the summons for examination addressed to Gary Malcolm Sampson dated 23 December 2008 be discharged. 4 That paragraphs 2, 3 and 6 of the orders of Registrar Christie dated 23 December 2008 (sic) be set aside or discharged. 5 That the examinations of Mark Ivar Norstrom and Gary Malcolm Sampson, and compliance with paragraphs 2, 3 and 6 of the orders of Registrar Christie dated 23 December 2008 (sic), be stayed pending the hearing and determination of the application in paragraph 1 above and NAB's Application for Leave to Appeal against the orders of Justice Mansfield made on 28 November 2008 and any appeal pursuant to such leave. 6 That the affidavits of Nicholas David Cooper sworn on 19 December 2008 and 23 December 2008 be available for inspection by NAB, Mark Ivar Norstrom and Gary Malcolm Sampson. 19 Although the application to set aside the summonses was made on 19 January 2009, it was made within the time prescribed by the Registrar's order. Order 3 rule 2(4A) of the Federal Court Rules provides: (4A) In calculating the time fixed by these Rules or by any order fixing, extending or abridging time, the period from 24 December to 14 January next following is excluded, unless the Court otherwise orders. Time therefore commenced to run on 15 January 2009. 19 January was the third business day after service. 20 On the same day, Mr Andrew McFarlane applied by way of notice of motion for an order staying the orders made by Registrar Christie. 21 The second application brought by the applicants was supported by an affidavit of their solicitor, Ms Sophie Rayner. She deposed that her clients had applied for orders that the orders made by the primary judge on 28 November 2008 be set aside or that they be given leave to appeal from those orders on the grounds: 6.1 first, the Scheme should not have been wound up on the basis that the requirements for a managed investment scheme under s 9 of the Act are not made out and 6.2 secondly, and in any event, s 601EE(2) does not confer the power to make orders to require a person to attend for oral examination under Part 5.9 of the Act or to produce documents. 22 The only ground asserted for the setting aside of Registrar Christie's orders and the issue of the examination summonses was the invalidity or the form of the orders made by the primary judge on 28 November 2008. 23 The notices of motion issued by the applicants and Mr Andrew McFarlane came on for hearing before the primary judge on 27 January 2009. 24 On that day the application for leave to appeal was stood over until 27 February 2009. 25 The applicants argued before the primary judge on the second application that they were entitled, even though not parties to the proceeding, to seek to vary those orders. The primary judge did not decide that question but gave directions in respect of the second application in relation to the filing of further evidence. 26 The applicants further argued that the orders made by Registrar Christie which affected them should be stayed until the disposal of their two separate applications. It was contended that their substantive rights would be affected if they were obliged to produce books and documents and submit to examinations in advance of the Court deciding whether the scheme was a managed investment scheme as defined by s 9 of the Act and whether, if it was, an order could be made under s 601EE(2) which allowed for examination orders under Part 5.9 of the Act. 27 The applicants contended that if they were successful on either application then the joint liquidators would have had no right to obtain evidence under Part 5.9 of the Act. It was contended that there was no distinction between being required to produce books and being examined. Both processes would provide the joint liquidators with information to which they were not entitled if the applications succeeded. The applications, it was said, would be rendered nugatory. 28 Mr Norman argued that the applicants did not have any rights which would be affected by allowing the examination summonses to proceed. It was contended that an examination summons does not determine any parties' rights or liabilities: Shapawloff v Stirling Henry (1972) 2 NSWLR 691 at 693; Gerah Imports v Duke Group (1993) 61 SASR 557 at 561. It was contended the applicants had no relevant right that needed to be considered. It was also contended that the applications for stay were made late, notwithstanding that the joint liquidators had given early notice to the Bank regarding the primary judge's orders of 28 November 2008 and on 16 December 2008 that the orders which the Registrar made would be sought. 29 Counsel for the joint liquidators argued that no stay should be granted unless there was a risk that the appeal would be rendered nugatory: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 695. They argued that if the applicants were ultimately successful any documents obtained by the examination summons process would have to be returned. It was also contended that the joint liquidators are bound as court officers only to use the documents for the purpose of the liquidation and if there is no liquidation they must be returned. 30 On 27 January 2009 his Honour made the following orders on the second application: On the Notice of Motion of National Australia Bank of 19 January 2009: 1. Direct National Australia Bank to file and serve by 10 February 2009 the affidavit evidence it proposes to rely upon and an outline of the contentions it proposes to advance in relation to paragraph 1 of that Notice of Motion. 2. Leave to the Applicant and any other interested person to file and serve by 24 February 2009 any affidavit evidence that person proposes to rely upon in addition to the material already filed in that proceeding and an outline of the contentions that person proposes to advance in relation to paragraph 1 of that Notice of Motion. 3. Fix 2:15pm 27 February 2009 for hearing and determining paragraph 1 of that Notice of Motion. 4. Application for stay of examination orders made in paragraph 5 of Notice of Motion refused. 5. Stand over to date to be fixed on two days' notice paragraph 6 of the Notice of Motion or any renewed application under paragraph 5 of the Notice of Motion confined to limiting the extent of the documents to be produced to a specified period of time. 6. Otherwise stand over the Notice of Motion for further directions to 2:15pm 27 February 2009. On the Notice of Motion of Andrew McFarlane of 19 January 2009: 1. Application for stay of examination order made in paragraph 1 of the Notice of Motion refused. 2. Stand over paragraph 3 of the Notice of Motion to a date to be fixed on two days' notice. 3. Otherwise stand over the Notice of Motion for further directions to 2:15pm 27 February 2009. 31 His Honour did not give reasons but said that he reserved the right to publish reasons if it became necessary. His Honour has not given reasons but having regard to the short time that has passed no criticism was made of the absence of reasons by any party. 32 The two applications for leave to appeal and to set aside or vary the orders of 28 November 2008 will not be heard until three weeks after Messrs Norstrom and Sampson are obliged to attend Court for examination and the Bank is obliged to produce the relevant books and documents. 33 On 3 February 2009 the applicants applied by way of notice of motion for leave to appeal against paragraph 4 of the orders of the primary judge made on 27 January 2009. They also applied for an order that the examinations of Messrs Norstrom and Sampson be stayed pending the hearing and determination of: (a) the Bank's application to set aside or vary the orders made by the primary judge on 28 November 2008 and any appeal pursuant to such orders; and (b) the Bank's application for leave to appeal against the orders made by the primary judge on 28 November 2008 and any appeal from such orders. It is those applications with which this Court is concerned. 34 The applicants' application for leave to appeal sought a hearing as a matter of urgency and before 6 February 2009, which is the date set for the examination of Messrs Norstrom and Sampson. 35 The applicants "elect[ed]" to have the application for leave to appeal heard and determined by the Full Court. 36 Order 52 rule 10 allows a party who is dissatisfied with an interlocutory judgment of the Court to apply to the judge who has pronounced the judgment for leave to appeal at the time of the pronouncement. If such an application is not made at that time, the party must apply to the Court within 7 days after the date on which the interlocutory judgment is pronounced: O 52 r 10(2A). 37 Section 25(2) of the Federal Court of Australia Act 1976 (Cth) provides that an application for leave to appeal may be heard and determined by a single judge or by the Full Court. A party may "elect" to have the application for leave to appeal from an interlocutory judgment heard by a single judge or by the Full Court: Reid v Nairn (1985) 60 ALR 419. However, a party does not have a right to insist on the application being heard by either a single judge or by the Full Court. It is for the single judge before whom the matter is listed to be heard to determine whether it should be heard by that judge or by the Full Court: Wati v Minister for Immigration and Multicultural Affairs (1997) 78 FCR 543. The right therefore to make an election is no more than a right to make a request. 38 In this case, it was determined that it was appropriate that the application be heard by the Full Court because, if leave to appeal were to be granted and a stay order made, the effect would be to reverse the decision of the primary judge on the application for leave and before the determination of the appeal. It was considered that, in those circumstances, the application for leave to appeal should be heard and determined by the Full Court. 39 The present applications are supported by an affidavit of the applicants' solicitor, Ms Thomson and a draft notice of appeal. 40 The effect of Ms Thomson's evidence is that the applicants wish to challenge the primary judge's orders of 28 November 2008 but cannot be heard in respect of that challenge until 27 February 2009. If the examination orders stand and the applicants are obliged to comply with those orders on 6 February 2009, they will suffer prejudice. The prejudice which is identified in Ms Thomson's affidavit includes the cost of complying with the orders directed to the Bank to produce the Bank's documents which is said to be substantial and the obligation to disclose confidential information which is confidential to the Bank and its customers. She deposed that if the applicants are successful on either of their applications then the prejudice which has been suffered will be irremedial. She deposed that the Bank will be put to substantial cost in complying with the orders. She said that the documents which are produced contain confidential information, although it is not clear whether the information is only confidential to the Bank or to other customers apart from the estate of Allan McFarlane. 41 The draft notice of appeal contains only one ground: 1 The learned judge erred in law, or alternatively mixed fact and law, in refusing to stay the orders for examinations of each of Mark Ivar Norstrom and Gary Malcolm Sampson, and production of documents by Mark Ivar Norstrom, Gary Malcom (sic) Sampson and National Australia Bank Limited (NAB) made by Registrar Christie on 22 December 2008 pending the hearing and determination of: (a) NAB's Application to set aside or vary the orders of Justice Mansfield made on 28 November 2008 and any appeal in respect thereof; (b) NAB's Application for Leave to Appeal against the orders of Justice Mansfield made on 28 November 2008 and any appeal pursuant to such leave. 42 The ground of appeal does not identify the error and whether the error is said to be in the exercise of the primary judge's discretion or a matter of principle. However, to be fair to the applicants they have been obliged to articulate their ground in the absence of the primary judge's reasons. 43 There is no doubt that the primary judge had jurisdiction to grant a stay in the terms of the order sought. Where a party has brought an appeal and where it is necessary to preserve the subject matter of the litigation or the appeal, the Court has jurisdiction to make a stay order: Jennings Construction Limited v Burgundy Royale Investments Proprietary Limited (1986) 161 CLR 681; Paringa Mining & Exploration Co PLC v North Flinders Mines Ltd (No 2) (1988) 81 ALR 609. Moreover, the Court has jurisdiction to make a stay order where the Court has been called upon to reconsider earlier orders. 44 A stay order is interlocutory and is in the discretion of the primary judge. Of course, the discretion must be exercised judicially. Leave to appeal is necessary because the order sought was interlocutory: s 24(1A) of the Federal Court of Australia Act 1976 (Cth). 45 It is necessary on this application for the applicants to show that it would be appropriate for this Court to give leave from an interlocutory order concerning practice and procedure made in the exercise of the primary judge's discretion. 46 The test on an application for leave to appeal to this Court from an interlocutory judgment was authoritatively determined in Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397. Put shortly, an applicant must show that the decision is attended with sufficient doubt to warrant its reconsideration by the Full Court and a substantial injustice would result if leave were refused. These applicants therefore must establish for leave to be granted that there is sufficient doubt about his Honour's refusal to make a stay to warrant the question of that stay being reconsidered by the Full Court and, as well, that if leave were not granted these applicants would suffer a substantial injustice. 47 Because the order is discretionary, the applicants must show that the exercise of his Honour's discretion miscarried in the way described by the High Court in House v R (1936) 55 CLR 499 at 505. To that end, they must show: ... that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. 48 It is not enough for the applicants to persuade this Court that if the members of the Court had been sitting at first instance they would have made the order. 49 As already observed, the applicants have not identified in the ground of appeal how they say the primary judge erred in the exercise of his discretion. We do not have the benefit of his Honour's reasons as this application must be determined as a matter of urgency. We cannot know therefore whether he has failed to take into account a material consideration or taken into account an irrelevant consideration or acted upon a wrong principle. All we have is the order itself made in the circumstances which we have described. 50 There is no doubt that orders made under Part 5.9 of the Act can put third parties to serious inconvenience and cost. That is the simple consequence of the examination procedure which is provided for in the Part. We can safely assume that, as Ms Thomson has deposed, the Bank will be put to cost and inconvenience by reason of the orders and we can assume that the costs will not be inconsequential. We can also assume that the Bank will be obliged to produce documents which are confidential to it and its customers, although we have no information as to the customers whose records may be produced. 51 It is clear from the information which was before the primary judge that a very large sum of money, probably in excess of $20 million, has been lost apparently through the default of Mr Allan McFarlane. A number of investors have individually lost a considerable amount of money. 52 It is also clear from the information before his Honour that the reason that Mr Norman brought this proceeding was to obtain the orders made on 28 November 2008 for the purpose of seeking the orders made by the Registrar on 22 December 2008. In other words, Mr Norman has, with other investors, brought this proceeding for the purpose of gathering evidence to bring action against parties apart from the late Mr McFarlane. It is clear that the Bank is one such party. 53 A stay order would mean that Mr Norman's purpose of obtaining evidence would be delayed by at least the time it takes for the Full Court to determine the application for leave to appeal from the orders made by the primary judge on 28 November 2008 or for the primary judge to determine the second application. That will be some time after 27 February 2009. Of course, if the primary judge refuses the second application on 27 February 2009 or shortly thereafter the applicants would still be entitled to prosecute the application for leave to appeal. In those circumstances, it could be some months before both applications are disposed of. 54 The applicants' main complaint is that if one of the two applications is successful information will have become available to the joint liquidators which they would not otherwise have been entitled to have. That is so. However, that possibility must be put in the balance. First, it is not self-evident that the applicants have any right to seek leave to appeal from the orders made by the primary judge on 28 November 2008 or that they have a right to seek to vary those orders because the existence of those orders subjected them to the examination process in Part 5.9. Secondly, it cannot be said without further examination and argument that it is arguable that the primary judge's orders of 28 November 2008 were made in error. Thirdly, as Mr Norman and the joint liquidators have contended, if the joint liquidators become apprised of the contents of documents which must later be returned to the applicants, the joint liquidators have no right to use the information gleaned or the documents obtained through the process other than in the liquidation. If the applicants are successful in their applications, the winding up order will cease to have effect and the joint liquidators' administration will cease. The joint liquidators would be obliged to return the documents and to respect the confidentiality of the contents of the information in those documents. It must be assumed, not only because the evidence supports it but, in any event, that the joint liquidators as officers of the Court are aware of their obligations. 55 The primary judge was required to balance the interests of Mr Norman and the applicants and was entitled to come to the view that the cost and inconvenience which the applicants might suffer was outweighed by the prejudice which might be suffered by Mr Norman and the investors. He was also entitled to take into account that Mr Norman and the joint liquidators were, at least for the time being, entitled to the benefits of the orders made. 56 The applicants' counsel took the Court to the transcript of the hearing before the primary judge. The transcript of argument is an unreliable source of a judge's reasons for decision. Exchanges with counsel do not necessarily reflect the judge's considered views. However, there is nothing in the transcript which would indicate that the primary judge proceeded upon a wrong principle or misapprehended the facts. Nor is there anything to suggest that the primary judge took into account any irrelevant facts or failed to have regard to any relevant facts. 57 As has been said, it is not enough to persuade the members of this Court that they would not have arrived at the same decision. It was the primary judge who had the responsibility for the hearing of the application and for exercising his discretion. This Court's role is limited to reviewing the primary judge's exercise of discretion. It is not this Court's function to substitute its exercise of discretion for that of the primary judge. 58 The applicants have not been able to establish that the primary judge erred in the exercise of his discretion and therefore the application for leave to appeal was dismissed. 59 Dismissing that application means that it would be inappropriate for this Court to make the order for any stay as sought because to do so would be to reverse his Honour's decision in circumstances where leave to appeal from that decision had been refused. 60 The third respondents took the part of the contradictor on this application and were in the result entitled to their costs. The applicants did not contend otherwise. 61 The first respondent also sought an order that the applicants pay his costs. The first respondent did not provide a written argument or make any submissions on the hearing but attended in case the Court needed any assistance in addition to that offered by the applicants and the third respondents. In those circumstances, the first respondent's costs should be limited to the cost of a solicitor attending the hearing. 62 The Court ordered: (1) The application for leave to appeal be dismissed. (2) The applications for the stay of the examinations of Mark Ivar Norstrom and Gary Malcolm Sampson and paragraphs 1, 2, 3, 4, 5, and 6 of the orders of Registrar Christie made on 22 December 2008 be dismissed. (3) The applicants pay the third respondent's costs. The further order of the Court will be: (4) The applicants pay the first respondent's costs not including any counsel fee. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Lander and Besanko.

National Australia Bank Limited v Norman

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