Pioneer Park P/L v Carpenter

CATCHWORDS : Corporations - Application for an order adjourning examination - Whether use of examination summons an abuse of process - Proposed Federal Court proceedings to set aside summons - Whether comity required adjournment. LEGISLATION CITED : Supreme Court Act 1970 (NSW) Corporations Act 2001 (Cth) Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq) (2003) 21 ACLC 545 Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69; 124 ALR 281 CASES CITED : Flanders v Beatty (1995) 16 ACSR 324; (1995) 13 ACLC 529 Harvey v Liquidators of Norman Wines Limited (In Liq) [2003] SASC 192 Hill v Smithfield Service Centre Pty Limited (In Liq) (2002) NSWSC 999; 171 FLR 154 Pioneer Park Pty Ltd PARTIES : v Clifford Carpenter Application of Australia & New Zealand Banking Group Limited FILE NUMBER(S) : SC 2270/04 COUNSEL : Applicant: J Thomson SC Plaintiff: J Garnsey QC & B Connell SOLICITORS : Applicant: Minter Ellison Plaintiff: PMF Legal

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2270/04 PIONEER PARK PTY LIMITED v CLIFFORD CARPENTER APPLICATION OF AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED JUDGMENT 1 HIS HONOUR: In these proceedings the applicant seeks orders that:

first, it be joined as a party to the proceedings pursuant to s 23 of the Supreme Court Act or Part 8 Rule 8 of the Rules; and

secondly, an order adjourning the examination of Jeffrey Neilson and Theresa Casanova, pursuant to a summons for examination dated 5 April 2004, to 21 June 2004 at 9.30am before Windeyer J for directions. 2 There was no opposition to the joinder of the applicant as a party to the proceedings. 3 The proceedings arise from an application made pursuant to s 596 B of the Corporations Act 2001 (Cth) by the present respondent to this application, Mr Carpenter, that certain employees and former employees of the applicant be summonsed to attend before the Court and be examined on oath about the examinable affairs of Pioneer Park Pty Limited (in liquidation), ("the company"). Mr Carpenter is a director of the company. He is not the liquidator. 4 On 4 February 2004 he was authorised by the Australian Securities and Investments Commission to be an eligible applicant for the purpose of making an application to the court under s 596 B in respect of seven such employees or former employees the applicant. The summonses to the examinees were issued by the court on 5 April 2004 and required their attendance on 31 May 2004, but for a matter to which I will now turn. 5 On 22 April 2004 five of the seven applicants sought orders that the summonses for their examinations be discharged. The two who did not make that application were Mr Neilson and Ms Casanova. 6 On 22 April 2004 Windeyer J, without giving formal reasons, made orders adjourning the examination summonses of the then applicants to 21 June 2004 for directions. His Honour stood over certain orders for production of documents to dates to be fixed. His Honour's orders were made on the undertakings of the then applicants to commence and to seek expedition of proceedings in the Federal Court of Australia for judicial review of the decision of the Australian Securities and Investments Commission to authorise Mr Carpenter to be an eligible applicant for summonses under s 596 B. His Honour declined to make orders relating to the examinations of Mr Neilson or Ms Casanova as neither was an applicant before him. 7 The present applicant, which I shall from time to time call the ANZ Bank, was not a party to the proceedings before Windeyer J and did not then seek to be joined as a party. 8 On 22 April 2004 the five applicants, who were applicants before Windeyer J, commenced proceedings in the Federal Court. Those proceedings are listed for hearing on 28 and 29 June 2004. 9 On 21 May 2004 Messrs Minter Ellison, who acted for those applicants, advised Mr Carpenter's solicitors that they had instructions on behalf of the ANZ Bank that it wished to be joined as an applicant in the Federal Court. Messrs Minter Ellison served a proposed further amended statement of claim in the Federal Court in which the ANZ Bank claims to be aggrieved by ASIC's decision to authorise Mr Carpenter to be an eligible applicant for the purposes of an application to the Court under s 596 B of the Corporations Act in respect of all seven individuals including Mr Neilson and Ms Casanova. No application has yet been made to the Federal Court for orders permitting the joinder of the ANZ Bank as an additional applicant. 10 Before me, the ANZ Bank has proffered an undertaking to prosecute diligently and expeditiously its application to be joined as an applicant in the Federal Court and to seek leave for the amendment of the amended statement of claim filed in those proceedings. I am told that the reason the ANZ Bank did not make application to Windeyer J on 22 April 2004, and was not an applicant in the proceedings originally filed in the Federal Court, was because its legal advisers did not then consider such an application to be necessary. Other counsel have since taken a different view. 11 The summons to Ms Casanova has not been served. The respondent, Mr Carpenter, does not object to its being stood over to 21 June 2004 for directions. As I have said, the examination of Mr Neilson is scheduled to take place next Monday, 31 May 2004. He does not object to the examination being conducted but the ANZ Bank does. 12 Prima facie, the only right of the ANZ Bank which might be affected by the examination of Mr Neilson is its right to keep its affairs confidential unless disclosure is compelled by lawful process. I think the highest the matter can be put for it is that Mr Neilson might disclose information in relation to its affairs, which are also part of the examinable affairs of the company, being information he would be unable or unwilling to disclose were he not under compulsion. 13 As I understood the submissions, counsel for the present applicant put its application on two bases. First, that there was an arguable case that the summons under s 596B had been obtained by the respondent for an improper purpose. Accordingly, so it was submitted, the examination should be adjourned in order to permit a later hearing of the claim that the examination summons to Mr Neilson along with those to the other examinees should be discharged. 14 The second basis was, that having regard to the pendency of the application to amend the Federal Court proceedings and to join the ANZ Bank as an applicant to them, the examination of Mr Neilson should be adjourned in the interests of comity. Otherwise, so far as Mr Neilson's examination is concerned, the ANZ Bank's claim in the Federal Court would be pre-empted by the examination occurring before its claim is heard. 15 In relation to the first basis, the alleged improper purpose of the respondent was not, I think, clearly articulated. But I understood in substance that it was contended that the improper purpose was that the respondent applied for the issue of the summons for the purposes of:

first, improving Mr Carpenter's position in proceedings in the District Court in which he is being sued as a guarantor of the company's debt by the ANZ Bank;

secondly, obtaining an improper forensic advantage in those proceedings by conducting a dress rehearsal of the cross-examination of the bank's witnesses or potential witnesses; and

thirdly, exerting what was called commercial leverage or pressure on the ANZ Bank in ways which were not fully specified, although one such suggested way was to put pressure on the ANZ Bank to withdraw its funding of certain proceedings which the liquidator of the company has brought against Mr Carpenter. See Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liquidation) (2003) 21 ACLC 545. 16 In support of these propositions, the applicant says that it is relevant that the liquidator, who has the primary responsibility for conducting examinations, has not chosen to examine the bank's employees and former employees and that he is not satisfied that the company has a meritorious claim against the bank. 17 I should say at once that there is no evidence that Mr Carpenter's purpose in applying for the examination summonses was to apply commercial pressure on the bank to withdraw its funding of the liquidator's claims, or otherwise. 18 I do infer that part of Mr Carpenter's purpose in applying for the summonses, was to advance his defence of the bank's claim against him in the District Court. In his defence to that claim he alleges that the bank breached its contract of loan with the company by terminating a fixed term facility when it had no right to do so, and thereby caused the company damage. He alleges in his defence, inter alia, that the bank's breach of contract with the company discharged him from his liability as guarantor. An application to strike out that defence was unsuccessful. 19 I make no comment upon the merits of those allegations. Although I can infer that Mr Carpenter seeks by the examination summonses to advance his own interests, he does so because he relies on matters which, if established, he says, would also advance the company's interests and those of all of its creditors and shareholders. 20 Counsel for the ANZ Bank did not submit that it was an improper purpose for obtaining examination summonses, for an applicant to intend an advancement of the company's interests in pending litigation. Both parties accepted that for the purposes of this application I should apply the reasoning in the judgment of the Full Federal Court in Re Excel Finance Corporation Limited; Worthley v England (1994) 52 FCR 69; 124 ALR 281. I am content to do so whilst noting, however, that in Flanders v Beatty (1995) 16 ACSR 324; (1995) 13 ACLC 529 Ormiston J said (at ACSR 335, ACLC 539)with the concurrence of the other members of the Appeal Division of the Victorian Supreme Court: "Now the powers given under s 596A to 597B are clearly so wide and so easily exercised by "eligible applicants'' (cf s 596A) that the purposes to be served by examinations ought not be limited by reference to the benefit of the company or its creditors or contributories. The objects to be served by the issue of an examination summons and the making of orders for examination should be discerned only by reference to the statutory provisions which invest those powers. If those powers are being used for oppressive purposes or to serve ends entirely outside the scope of the sections, such as to gather evidence for libel proceedings, then the Court will intervene to prevent the examination." 21 In Harvey v Liquidators of Norman Wines Limited (In Liquidation) [2003] SASC 192, Besanko J said at [49]: "The purpose (of the liquidator) of advancing the interests of a creditor of the company who has instituted proceedings against the proposed examinees is not an improper purpose if there is a basis for concluding that advancing the interests of the creditor will also advance the interests of the company, its other creditors or contributories".

22 In Re Excel Finance Corporation Limited; Worthley v England (1994) 52 FCR 69; 124 ALR 281 the Full Court said (at FCR p 91, 93, ALR p 302, 304) that, the purpose of the power of examination is ultimately to aid the company itself and is not to be used for the personal advantage of the person seeking the examination.

"We are of the view that the use of the power to obtain an examination summons for the principal purpose of furthering the cause of the applicant for the summons or, as in this case appointor of the applicant in litigation against third parties, not for the benefit of the corporation, its contributories or creditors (other than in the most indirect way) is a use of the power for a purpose foreign to that power and thus of abuse of that power. Such purpose would provide to the examiner the opportunity for pre-trial depositions which would not be available in the litigation".

23 The evidence before me does not show that Mr Carpenter's purpose is to use the examination summonses not for the company's purpose except in the most indirect way, but for his own. To the contrary, he seeks to advance his position by advancing, as he sees it, the position of the company. 24 Counsel for the applicant also relied upon the decision of Austin J, in Hill v Smithfield Service Centre Pty Limited (In Liquidation) (2002) NSWSC 999; 171 FLR 154 where his Honour held that the predominant purpose of the applicant for an examination summons, (whose standing was also based on an authorization from ASIC) was illegitimate. 25 At FLR 164 his Honour said at: "50 In the present case, a number of factors lead together to the conclusion that it would be an abuse of process for Mr Hill to continue with the examination, even though he obtained an order for the issue of the examination summons as an eligible applicant and he retains that status. The factors are these: (1) since becoming a bankrupt, Mr Hill no longer has (according to the reasoning in the Claremont case) a financial or other interest in the pursuit by SSC of recovery action against Mr Sutherland or his appointor, even though recovery may be of some indirect benefit to him; (2) if the examination summons had been issued before Mr Hill's bankruptcy, the proceeding would have been stayed under s 60 (2) of the Bankruptcy Act, and it would be anomalous if the proceeding were allowed to continue simply because the bankruptcy occurred before the application was made by the bankrupt; (3) Mr Hill's trustee in bankruptcy has elected against proceeding with the examination; (4) any cause of action for recovery in respect of the sale of the Marrickville property at an alleged undervalue would be SSC's cause of action, subject to the possibility of a derivative proceeding; (5) the liquidator of SSC has not sought to examine Mr Sutherland under the Corporations Act, as he might have done.

51 These factors lead to the conclusion, in my opinion, that Mr Hill's predominant purpose is an illegitimate one. Its illegitimacy lies not in the fact that implementation of the purpose would benefit Mr Hill rather than SSC, but in the fact that those whose primary responsibility is to pursue such matters, namely the liquidator and (to a lesser extent) the trustee in bankruptcy, have not taken steps to do so; and in those circumstances Mr Hill's purpose is to intermeddle in matters not directly of concern to him and thereby gain a forensic advantage not otherwise available to him." 26 This decision turned on its own facts. The relevant factors included: that the eligible applicant was bankrupt; that he had not disclosed his bankruptcy when applying for the examination summonses; and, as a bankrupt, he had no relevant interest as a creditor or a shareholder of the company as any benefit would pass to his trustee. I do not think that the decision dictates the result of the present application. 27 So far as the liquidator is concerned, it is clear he is not presently prepared to institute proceedings by the company against the bank. But his attitude to conducting examinations, if he were funded to do so, is not apparent to me. However, as the respondent is also an eligible applicant for the summonses I do not think that the position for the liquidator in this case has a particular relevance. It is, I think, possible that the examination of Mr Neilson, will in the result, be a dress rehearsal of the cross-examination if he is called as a witness in the District Court proceedings. That matter was discussed in Re Excel Finance (at FCR 90 to 91) where the Full Court said that whether there will be in a particular case a use of process, or an abuse of it, depends on the purpose for which the process is used rather than its result. Merely because of the proceedings have been instituted does not of itself mean that it is an abuse of process to examine potential witnesses. 28 There would be an abuse, according to the reasoning in Re Excel Finance, if Mr Carpenter's dominant purpose was to advantage himself rather than the company, but the evidence is rather that he sees his interests in the District Court proceedings as being derived from those of the company. 29 It is therefore unnecessary for me to consider to what extent the statements of principle in Re Excel Finance are good law having regard to the decision in Flanders v Beatty. That was not a question debated before me. 30 In my view, the material relied on by the applicant does not raise a serious question of an abuse of process, although it does raise an arguable question as to the respondent's purpose. I do not accept that the applicant is entitled to an order adjourning the examination merely by raising an arguable question of improper purpose. It seems to me that, before the applicant would be entitled to an adjournment on that ground, it would be necessary for it to establish either that the respondent had an improper purpose or that there are reasonable prospects of its obtaining evidence of such an improper purpose which it has been unable to obtain at the time of the hearing. 31 It is also to be borne in mind that the examinee has made no application and does not object to the examination proceeding. In those circumstances the question of the applicant's standing would have to be considered at a further hearing if an adjournment had been obtained. That was not an issue which was argued before me and it is unnecessary to say anything more about it. 32 I turn to the second basis upon which the applicant's claim was put. It proposes to seek relief in the Federal Court in relation to all seven summonses including that to Mr Neilson. The applicant has not adduced evidence to seek to establish before me that it has a prima facie right to the relief it proposes to seek in the Federal Court. On one view, however, I should adjourn Mr Neilson's examination so that if the applicant is successful in the Federal Court that Court will be able to make orders which fully protect the applicant's position in relation to all seven summonses. If to afford comity to the Federal Court that was the preferable outcome, I would order the adjournment which is sought. I infer that it was for reasons of that kind that Windeyer J adjourned the examinations of the five applicants who had undertaken to commence proceedings in the Federal Court. 33 However, the position of the ANZ Bank is different. It did not bring proceedings in its own right in the Federal Court on 22 April 2004. It has not yet done so. The Federal Court has not decided whether it should have leave to do so. In ordering the adjournment of the five summonses on 22 April 2004 Windeyer J imposed a condition that those applicants seek expedition. Yet the bank's application to be joined was not foreshadowed until almost a month later. 34 The examination which it seeks to adjourn is scheduled to take place in less than a week's time. The examinee does not object to the examination taking place. No hardship to the bank has been demonstrated. A Registrar of this court has set aside a time for the examination. In all of those circumstances I do not think that comity requires me to adjourn the examination of Mr Neilson and I decline to do so. 35 As Ms Casanova has not been served, her summons will stand over to 21 June 2004 at 9.30am for directions. Otherwise, I dismiss paragraph 6 of the interlocutory process. The interlocutory process also seeks a declaration and orders in paras 7 and 8. Those matters were not argued before me except to the extent they were relied on for the order in para 6. I will order that Australian and New Zealand Banking Group Limited be joined as a party to the proceedings. I stand over the balance of the interlocutory process to 21 June 2004 at 9.30am before Windeyer J for directions. I order that the applicant, Australian and New Zealand Banking Group Limited, pay the respondent's costs of this application. I direct that the costs which I have ordered the applicant to pay, if not agreed, may be assessed forthwith and will be payable forthwith after assessment for agreement.

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