Pitman v Park [2020] FCA 887 | Case summary

Pitman v Park [2020] FCA 887 | Case summary | Zoe

[6]

Introduction 1 On 3 March 2020, a District Registrar of this Court made orders pursuant to s 596B of the Corporations Act 2001 (Cth) (the Act) for the issuing of summonses in the liquidation of BAM Recycling Pty Ltd (in liquidation) (formerly called Big Red Shed Holdings Pty Ltd) (the Company). One of those orders was that a summons for examination be issued to the applicant, Mr Joel Hunter Pitman (Mr Pitman), requiring both his attendance at an examination and that he produce certain documents. On 5 March 2020, a summons was duly issued in respect of Mr Pitman, identifying in its schedule the documents to be produced. It was apparently served on him and on 20 March 2020, he filed an application pursuant to r 11.5 of the Federal Court (Corporations) Rules 2000 and r 3.11 of the Federal Court Rules 2011 (Cth) seeking orders for the partial discharge of the Registrar's orders and of the summons or alternatively for the summons to be varied to remove Mr Pitman's obligation to provide documents relating to his personal financial position. An amended interlocutory application was filed on 3 June 2020, seeking a partial discharge of the summons to the extent necessary to give effect to the variation sought. The documents in respect of which Mr Pitman denies any obligation to disclose are within the classes of documents described in paragraphs 20 to 32 of the schedule to the summons. As an alternative, he seeks orders that the scope of those classes of documents be limited to those which it was not beyond the power of the Court to order. 2 The liquidator, Mr John Richard Park, opposes the partial discharge of the summons. In doing so he filed and relied upon a number of affidavits pertaining to the circumstances of Mr Pitman's known involvement with the Company in liquidation. Specifically, he does not rely upon the confidential affidavit which was filed pursuant to s 596C of the Act in support of the initial issuance of the summons. That strategy appears to be directed to some further relief originally sought by Mr Pitman, namely that he be entitled to view the confidential affidavit which, in the ordinary course, would be withheld from inspection by the recipients of summons.

[7]

Factual background 3 Prior to its liquidation, the sole director and secretary of the Company was Ms Rosanne Janeen Simmons (Ms Simmons). She had held both of those positions since 11 June 2013. Prior to then the Company's sole director had been Ms Simmons' husband, Mr Wayne Anthony Simmons (Mr Simmons), who had held that position since 23 November 2009. 4 The nature of the Company's business was that of buying and selling recycled building materials and it was carried on from premises at 18 Sumners Road, Darra, in the State of Queensland. The circumstances of its decline into insolvency are not relevant to this application. 5 In answer to certain questions asked by the liquidator, Ms Simmons has advised that the Company ceased trading in mid-2018. She also advised that her husband and herself were responsible for the day to day management of the Company and its business. 6 At a time well prior to 24 August 2018, the Deputy Commissioner of Taxation issued a statutory demand to the Company for the payment of a debt in the sum of $853,610.77, some of which had been accruing since 2013. 7 Whilst there was apparently no dispute that the debt was payable, the statutory demand was unsatisfied. 8 On 27 June 2018, the Deputy Commissioner filed an application in the Federal Court of Australia to wind up the Company. 9 At all material times Mr Pitman was a director of the solicitors firm, Morgan Conley Solicitors Pty Ltd (Morgan Conley). 10 On 24 July 2018, that firm was engaged to act on behalf of the Company in respect of the winding up application. There is little evidence from Mr Pitman as to what services were provided to the Company and its directors. It can be inferred that Mr Pitman would be aware of such matters and, if he were so minded, he could have included evidence of the same in his affidavit filed in support of his application. He chose not to do so and nor did he explain that omission. 11 The winding up application was eventually set down for hearing on 24 August 2018. 12 On 21 August 2018, Mr Tim Logan, then a solicitor in the employ of Morgan Conley, wrote to Mr Alistair Bell of CGA Accounting, the Company's accountant, seeking confirmation that his instructions in relation to the winding up application were not to oppose the orders sought by the Deputy Commissioner of Taxation. Those instructions were apparently confirmed. No indication was given as to why it was Mr Bell who was providing instructions on behalf of the Company rather than its director, Ms Simmons. 13 At around this time it appears that Mr Bell contacted Mr Pitman and requested that he provide him with a form of business sale agreement listing the Company as vendor and Tranz Holdings Pty Ltd as the purchaser. Tranz Holdings Pty Ltd was a company which had its registered office at the premises of CGA Accounting and whose director, since 12 June 2018 had been Mr Simmons. Ms Simmons had previously been a director of that company. 14 On 22 August 2018, Mr Pitman sent to Mr Bell a business sale agreement identifying Big Red Shed Holdings Pty Ltd as the vendor and Tranz Holdings Pty Ltd as the purchaser. No specific purchase price was included in the agreement, but cl 3.2 provided that a qualified accountant was to provide a valuation for the purpose of setting the price. 15 On 24 August 2018, a winding up order was made in respect of the Company and Mr Park was appointed as its liquidator. 16 At [16] of Mr Park's affidavit of 8 May 2020, the following is deposed: On 27 August 2018, Mr Hellwege of my office telephoned Mr Simmons to discuss the affairs of the Company. I am informed by Mr Hellwege and believe, that during this telephone call, Mr Simmons informed him that the business of the Company was sold approximately 12 months prior (to the call), to Tranz Holdings Pty Ltd ACN 609 156 194 (Tranz). Annexed hereto and marked JRP-3 is a historical company search of Tranz obtained from the online database of ASIC. 17 On 21 November 2018, Mr Pitman, apparently acting for Ms Simmons in her role as the director of the Company, sent an email to the office of the liquidator attaching a number of documents which were identified in the email as being, inter alia, a sale agreement and a copy of a completed questionnaire signed by Ms Simmons. The business sale agreement between the Company and Tranz Holdings Pty Ltd is not insignificant. Firstly, it is substantially in the form of the draft agreement which Mr Pitman had sent to Mr Bell on 22 August 2018. Second, it is dated 28 September 2017 which pre-dates by more than a year the occasion when Mr Pitman sent the draft to Mr Bell. Third, the email to the liquidator included an attached document purporting to be a balance sheet of the Company as at 30 June 2018 showing that the net asset position of the Company was -$31,858.01. On 30 November 2018, Mr Bell, who has also been summonsed for examination, provided the liquidator with the Company's MYOB files. From those, the liquidator has extracted a balance sheet as at 30 June 2018 which discloses a net asset deficiency of -$769,088.31. To date, the reason for the discrepancy between the balance sheet provided by Mr Pitman and that derived from the MYOB files has not been explained. 18 On or around 21 December 2018, during the course of a telephone conversation, Mr Pitman informed Mr Hellwege, of the liquidator's office, that no valuation of the business of the Company had ever been undertaken. 19 In his affidavit Mr Pitman denies any close involvement with the Company. He says that he was requested by Mr Bell to provide a pro forma business sale agreement between the Company and Tranz Holdings Pty Ltd as purchaser which he did. He claims he received no other information about the circumstances of the transfer and he says he did not provide advice and nor was he engaged to do so. 20 Further, Mr Pitman deposes that, whilst Mr Logan is now a director of Morgan Conley, in 2018 he was an employed solicitor. In effect, Mr Pitman suggests or asks the Court to infer that he had little or no involvement with his firm's provision of services to the Company in respect of the winding up application. That said, he acknowledged that since the liquidation he has authored correspondence sent to the liquidator's office and in particular assisted CGA Consulting in its dealings with the liquidator. In relation to the documents which he provided to the liquidator he claims that he had little to do with them save to pass them on from Mr Bell, albeit with minor amendments. 21 In a further affidavit filed on the day prior to the hearing of this application, Mr Pitman deposed that he did not see the executed business sale agreement until 21 November 2018 and nor had he seen any document like it.

[9]

Setting aside a summons 24 Rule 11.5 of the Federal Court (Corporations) Rules 2000 makes provision for the discharging of an examination summons issued under s 596B. It provides: 11.5 Discharge of examination summons (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 ASIC or a person authorised by ASIC - ASIC. 25 Rule 3.11 of the Federal Court Rules together with s 35A of the Federal Court of Australia Act 1976 (Cth) also provides an avenue for the review of the exercise of power of a Registrar of the Court. Rule 3.11 provides: 3.11 Application for review of a Registrar's exercise of power (1) A party may apply to the Court under section 35A(5) of the Act for review of the exercise of a power of the Court by a Registrar. (2) The application must be made within 21 days after the day on which the power was exercised. 26 Section 35A(5) and (6) provides: 35A Powers of Registrars (5) A party to proceedings in which a Registrar has exercised any of the powers of the Court under subsection (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 subsection (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.

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Role of the Court on an application to discharge or vary a summons 27 To some extent, both parties appeared to support the proposition that, on an application such as the present, the Court was to undertake a de novo hearing of the application and determine for itself whether orders should be made for the issuing of the summons. However, little was said by the legal representatives appearing on the application as to the underlying foundation for that proposition and, in particular, why the Court should not engage in a "review" of the registrar's decision as is suggested by the wording of s 35A(5) and (6). As it transpires, the issue is not entirely without its difficulties. 28 In Mazukov v University of Tasmania [2004] FCAFC 159 (Mazukov), the Full Court (Kiefel, Weinberg and Stone JJ) considered the nature of a review hearing under s 35A(5) and (6) and, in particular whether the review was by way of an appeal by way of rehearing or an appeal de novo. In reliance on the decision of Davies J in Jageev Pty Ltd v Deane (1997) 72 FCR 398 and of Katz J in New Era Installations Pty Ltd v Don Mathieson & Staff Glass Pty Ltd (1999) 31 ACSR 53 which was approved by a Full Court in Martin v Commonwealth Bank of Australia (2001) 217 ALR 634 at [6]-[7], their Honours concluded that a review of a registrar's decision under s 35A(6) must be by way of a hearing de novo, in the sense of being a hearing where the parties may adduce fresh evidence as of right: Halsbury's Laws of Australia at [325-11110]. The foundation for that conclusion has significant history: see Re Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374, 380-381; see also the observations of Rees J in In the matter of Newheadspace Pty Ltd (in liq) [2020] NSWSC 173 (Newheadspace), [65]; although it is not necessary to consider it here. 29 The decision in Mazukov on this point has been followed by subsequent Full Court decisions such as Federal Commissioner of Taxation (Cth) v Vasiliades (2016) 344 ALR 558, 573 [46] per Kenny and Edelman JJ and by single judges of this Court such as Charlesworth J in Kassiou v Heard [2017] FCA 425. 30 On the other hand, Ward J (as her Honour then was) in the Supreme Court of New South Wales took a different view in Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707 (Accord Pacific) and concluded that the process is one of review of the Registrar's decision rather than a hearing de novo. Her Honour said at [105]: The approach on an application such as this is for a review of the Registrar's decision to issue the summonses and not as a hearing de novo, (O'Brien v Wily (2009) 74 ASCR 145). (Though there is an argument that such an approach is incorrect, that is a matter that will be determined if at all in another forum - I refer to the articulation of this argument as it was put in In the matter of Idoport Pty Ltd (in liq) (recs apptd) [2011] NSWSC 322.) 31 The argument referred to by her Honour had been set out fully in her reasons in Re Idoport Pty Ltd (in liq) (recs apptd) (2011) 83 ACSR 164 at 186-187 [99]-[103], and is to the same effect as that which found favour with the Court in Mazukov. 32 Neither party before the Court expressly submitted that I should depart from the approach in Mazukov and, as it would not affect the outcome in this case, it is appropriate to adopt that course. It follows that it is necessary for the Court to ascertain on the material before it whether it should make an order for the issuing of the summons and, if so, on what terms.

[11]

The Court's power to issue the summons has been enlivened 33 Here the jurisdictional facts in s 596B(1)(a) and (b) were satisfied on the material before the Court: Re Australasian Liquid Storage Pty Ltd (in liq) (2017) 121 ACSR 119 (Australasian Liquid Storage). 34 Mr Park, in his capacity as liquidator, is an "eligible applicant": see the definition in s 9. 35 In relation to the requirements of s 596B(1)(b)(ii), the liquidator must objectively satisfy the Court that the person whom they wish to summons may be able to give information about the examinable affairs of the company: Australasian Liquid Storage at 124-127 [17]-[29]. The meaning of the expression "examinable affairs" of a corporation is derived from the combination of the definition in s 9 of the Act together with the expansion of that term in s 53. It is undoubtedly an expression of wide scope: Evans v Wainter Pty Ltd (2005) 145 FCR 176 (Evans v Wainter), 191 [81]-[82]. In this case the Company's disposition of its assets by their sale to Tranz Holdings is obviously within the scope of its examinable affairs and there was no dispute to the contrary. Similarly, the chose in action or potential chose in action of the company or liquidator to recover the losses sustained by reason of the disposition of the assets for no apparent consideration, are within the scope of the expression, "examinable affairs". Mr Pitman was aware of and part of some of the events which led to the Company's business being transferred and there is no doubt that he would be able to give evidence about those matters. 36 Here, the liquidator maintains that the summons is sought for the purpose of obtaining information to enable him to assess whether proceedings should be brought against Mr Pitman in relation to the sale of the Company's business. It is well established that any information with respect to the probability of success in litigation contemplated by the liquidator is information with respect to the "examinable affairs" of the company, as it goes directly to the existence and value of an asset of the company (i.e. a chose in action): Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 (Grosvenor Hill), 305. For this reason, it is now accepted that the liquidator may apply for the Court to summon a person for the following purposes (inter alia): (1) To determine whether there is evidence available to support a claim brought by the company against delinquent officers and other parties associated with the company's affairs to recover property or damages, and the strength of that evidence: Hong Kong Bank of Australia v Murphy (1992) 28 NSWLR 512; Re BPTC Ltd (1992) 7 ACSR 291; Whelan v Australian Securities Commission (1993) 58 FCR 333; and (2) To inquire as to the worth of a potential defendant so as to be able to make a practical assessment as to the likelihood of a return to the company in the event of a favourable judgment and the necessary legal costs expended in obtaining it: Grosvenor Hill, 311; Evans v Wainter, [82] per Lander J; Pleash v Tucker (2018) 264 FCR 374 (Pleash v Tucker), [53]; Heard, in the matter of GEBIE Services Pty Ltd (in liq) [2017] FCA 323 (GEBIE Services), [27]; Boys v Quigley (2002) 26 WAR 454, 460 [20]. 37 As an aside and before leaving this topic, it is relevant to observe that in Meteyard v Love (2005) 65 NSWLR 36 (Metyard v Love) Basten JA extrapolated four operative considerations in relation to the satisfaction of the subjective jurisdictional facts imposed by s 596B(1)(b)(ii). His Honour said at 46-47 [39]: A consideration of the terms of s 596B(1)(b)(ii) suggests that the scope of the power is delimited by four considerations, namely that: (a) the proposed examinee may have "information" to give; (b) the information must be relevant in the sense that it is about "examinable affairs of the corporation"; (c) because the purpose of the section is to allow the receivers and managers to be informed of facts about the affairs of the company, the information should be information not within their knowledge, although the extent of knowledge will not be precisely definable, and (d) there must be a factual basis for the Court to form a reasonable state of satisfaction that a proposed examinee may have relevant information. 38 Although there may be some debate about whether any valid implication arises in relation to the matter in paragraph (c): Santow JA in Meteyard v Love, 41 [11] and White J in Re Godfrey as liquidator of Pobjie Agencies Pty Ltd (in liq) (2007) 61 ACSR 54 (Pobjie Agencies), [68]: there is no need to consider that question. However, it would be relevant to the exercise of the discretion that the information thought to be reposed in the intended examinee is already known or substantially known by the liquidator.

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The discretion to issue a summons is wide 41 It must first be observed that the discretion to order that a summons be issued is conferred on the Court in unconfined terms such that, prima facie, the manner in which it is exercisable and the matters which the Court might take into account in its exercise are similarly unconfined. Nevertheless, as is the case with all judicial discretions, it is to be exercised in a principled manner taking into account the objects which it is intended to achieve. A useful identification of the correct approach to the exercise of the judicial discretion to issue an examination summons can be found in the observations of Lander J in Southern Cross Petroleum Sales (SA) Pty Ltd (in liq) v Hirsch (1998) 70 SASR 527 where his Honour said at 536-537: The discretion is unfettered but must be exercised judicially. In exercising that discretion the court might have regard to the expressed purpose of the examination; the importance of the information to the eligible applicant; the seriousness of the matters to be inquired into; the use to which the information obtained on the examination might be put; the possibility of an advantage to the eligible applicant which he or she would not otherwise enjoy and the concomitant disadvantage to the prospective examinee; the availability of the information from other sources; the cost to the prospective examinee in attending for examination; whether the information sought is so peripheral to make the attendance of the prospective examinees oppressive; and the wider public interest in investigating the affairs of the corporation. 42 It is to be noted his Honour observed that the identified matters might be taken into account in the exercise of the discretion. His Honour was obviously not seeking to impose a checklist of "relevant considerations" to be considered in all cases. Indeed, he observed that the discretion was unfettered and that must have the consequence that the scope of matters which might be taken into account will also be unfettered, so long as the power is exercised judicially in the sense that it is devoid of those errors which might invalidate any purported exercise: House v The King (1936) 55 CLR 499 (House v The King). 43 Also relevant to this issue is the decision of the Full Court in Kimberley Diamonds Ltd v Arnautovic (2017) 252 FCR 244 (Kimberley Diamonds) (Foster, Wigney and Markovic JJ). Although that decision considered the application of s 596A, many of the Court's observations are equally applicable to s 596B including; that the broad power ought not be read down by implication or imposing limitations which do not exist in the express words; there is no requirement that, prior to exercising its power, the Court needs to be satisfied that the potential results of the examination justify it being undertaken; and there is no requirement for the liquidator to establish that the examination will ultimately have some practical utility or that it will result in the revelation of some viable claim against an examinee or a third party. Whilst acknowledging that the primary purpose of public examinations is to gather information and that there is no requirement that the information intended to be gathered is directed to legal proceedings, the Court accepted that the power is not open ended and it must be directed to the ascertainment of the company's examinable affairs. Their Honours said (at 264 [104]): The position may be different if the examinee is able to demonstrate that the controversy, or the perceived controversy, or the unanswered questions, do not genuinely relate to or arise from the examinable affairs of the company, or are otherwise speculative, far-fetched or misconceived. In such circumstances, it could well be concluded that the examination was an abuse of process. The use of the examination process for such a purpose could rightly be found to be vexatious or oppressive and to bring the administration of justice into disrepute. The "heavy" onus of demonstrating this rests on the party seeking to stay the summons. … 44 The same general principles apply, mutatis mutandis, to the discretion in s 596D(2) when a Court considers the scope of documents which it will require an examinee to produce, keeping in mind that the documents must relate to the examinable affairs of the company. 45 As was mentioned in the quote from Kimberley Diamonds, a summons for examination will not be made if it would constitute an abuse of process. The party alleging the improper purpose carries a heavy onus of establishing it: Accord Pacific, [138]. Necessarily, the question of whether there is an abuse of process depends on the purpose or object of the party seeking or obtaining the orders for examination, and the circumstances of the case: Worthley v England; Re Excel Finance Corporation Ltd (1994) 52 FCR 69 (Worthley). It must be shown that the summons was sought for a purpose other than benefiting the corporation, and that the offensive purpose was the predominant purpose of the person who sought it: Evans v Wainter, [143]. 46 It was not directly suggested in the present case that the nature and scope of the summons sought by the liquidator indicated the existence of any abuse of process.

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The principle purpose of public examinations is to acquire information 47 The purpose of issuing summonses under s 596B is to facilitate the public examination process and thereby allowing liquidators to obtain the information necessary to properly discharge their functions in the winding up of a company. In particular, it must be kept in mind that liquidators are often in the unenviable position of having the third type of Rumsfeldian knowledge in relation to the assets, business affairs and transactions of the company in that they do not know what they do not know: cf Grosvenor Hill, 306. 48 The width of the powers of liquidators to conduct public examinations and of courts to order the issuing of summons for that purpose, reflect a legislative intention that it is in the public interest that insolvent companies be wound up on the basis of accurate knowledge of the facts underlying its transactions and that the limited liability provided by the corporate veil is not to be used to conceal misconduct where it has occurred or to deprive creditors of the returns to which they are justly entitled. Whilst it can be accepted that giving effect to the liquidator's "privileged position": Grosvenor Hill, 306: will necessarily intrude upon the rights of individuals and into their otherwise private affairs, as Basten JA observed in Meteyard v Love at 71-72 [136], that is a necessary consequence of maintaining corporate integrity: Secondly, the scope and operation of s 596B is such that it will inevitably intrude on private and commercial interests of third parties and require the disclosure of information which would, absent such a provision, be confidential. Despite those consequences, the provision must be given full effect, in accordance with its terms, reflecting a choice made by the Parliament as to the necessary balance between such private and commercial interests and the public interest in the orderly administration of companies under the control of external managers. 49 This approach differs slightly from that taken in Grosvenor Hill in that it accords primary respect to the balance between the two competing interests which the Parliament has embedded in the provisions themselves flowing from the limitations that the summons must be directed to the company's "examinable affairs". In Grosvenor Hill at 306, the Court suggested that the balancing was to occur in the exercise of discretion where the public interest in the liquidator being fully informed so that he may carry out his function, is to be weighed against the right of individuals to privacy in regard to their affairs, documents and papers. For that proposition the Court relied upon the observations of Young J in Re Spedley Securities Ltd; Ex parte Potts (1990) 2 ACSR 152, 154: see also Vagrand Pty Ltd (in liq) v Permanent Trustee Aust Ltd (1995) 127 FLR 235. Were it necessary to decide, which it is not, Basten JA's view is to be preferred and it is supported by the actual words of s 596B. The imposition of an implied obligation on the Court to balance a particular factor (such as a right to privacy) against the general public interest in ensuring the proper performance of the liquidator's obligation, inappropriately seeks to confine the discretion. 50 In any event, it is well recognised that the Court always retains a discretion, in appropriate cases, to refuse to exercise the power to issue a summons or to make its exercise subject to stringent conditions: Grosvenor Hill, 311-312. There the Court identified the guiding principle that: [I]t must be left to the Court in any particular instance, guided by the evident statutory purpose of the section, to determine whether or not the information is relevant to the liquidator for the purpose of performing his statutory duty and whether and in what manner any proposed examinee needs to be safeguarded beyond the ordinary safeguards of court control of the examination process from any oppressive exercise of the power. 51 Similarly in Meteyard v Love, Basten JA noted (at 71 [135]), that the exercise of the discretion on the application of an external administrator will always seek to avoid vexation and oppression. 52 It follows that, with one possible caveat, the discretion in s 596B is wide and unconfined as is befitting of a discretion which will be called upon in an almost infinite variety of cases. It is to be exercised in accordance with the above general principles concerning the exercise of a judicial discretion and, in particular, for the purposes which the legislature intended that it achieve. Otherwise it ought not to be limited or confined by any judicial exegesis as to matters which can or should be taken into account which are said, a priori, to have greater weight in the balancing process. 53 The one possible caveat flows from the fact that the power in s 596B is a discretion, the exercise of which is conditioned upon the satisfaction of jurisdictional facts. Although the satisfaction of those facts enliven the discretion, it does not follow that their relevance is thereupon spent. On the contrary, the satisfaction of those jurisdictional facts generally directs the exercise of the discretion in favour of the issuing of a summons. Although the discretion remains unfettered, once the Court is satisfied that the intended examinee has information about the examinable affairs of the company or has been concerned in them, there is good reason for acceding to a liquidator's wish to examine them for the purpose of extracting that information. It cannot be denied that if the Court is satisfied of the jurisdictional fact in s 596B(1)(b)(i); namely that the intended examinee has taken part in the examinable affairs and has or may have been guilty of misconduct in relation to the company; that, of itself, would not be an insignificant factor in the exercise of the discretion to issue a summons. The same situation applies where the Court is satisfied of the matter in s 596B(1)(b)(ii), although that matter may be of less weight. Whether it be that the Court starts with a predisposition in favour of ordering the summons be issued or that the satisfaction of the jurisdictional facts is, per se, a "material consideration", in the House v The King sense, of not inconsiderable weight in the exercise of the discretion, does not matter. The short point is that the satisfaction of the jurisdictional facts is an important characteristic of the context in which the power is exercised. 54 Again, these principles relating to the exercise of the discretion to issue a summons are also relevant to the exercise of the discretion as to the scope of the documents which a potential examinee will be required to produce pursuant to s 596D(2). However, the exercise of the discretion in s 596D(2) is also subject to the requirement that the documents of which production is required relate to the company or any of its examinable affairs.

[15]

The case advanced by Mr Pitman 55 Although not advanced in precisely these terms, Mr Pitman effectively attacks the width of the categories of documents which the summons requires him to produce on two bases: (1) Firstly, that the disputed documents do not sufficiently relate to the affairs of the company because he is not, or has not been shown to be, a "potential defendant" from whom documents about his personal finances are required; and (2) Second, in the alternative, that the Court should exercise its discretion not to require him to disclose documents to the extent identified in paragraphs 20 to 32 of the summons. 56 The foundation of the first ground was not immediately clear. Mr Pitman had acknowledged that the power to order a summons be issued to him was enlivened because he was aware of the company's examinable affairs relating to the transfer of its business and assets to Tranz Holdings. It would, therefore, seem that his contention was that the requirement to produce his personal financial documents was only within the power in s 596D(2) if the examinable affairs of the company included the existence of a potential claim against him by the liquidator who wished to ascertain whether he was worthwhile pursuing. In this regard he submitted the material was inadequate to suggest that he was a potential defendant such that the documents sought did not relate to the examinable affairs of the Company. It was also submitted that, even if the documents were technically within the scope of s 596D(2), the likelihood of any action being commenced against Mr Pitman was so low that the discretion should be exercised against requiring the production of his personal financial documents. 57 The second ground was similarly based on s 596D(2) in that it was said that the width of the documents described in the schedule extended to areas which could not rationally be seen to relate to the examinable affairs of the company or, if they did, their relevance was so tangential that it was oppressive or vexatious to require their production.

[17]

What are the examinable affairs of the company in this case 61 The liquidator submitted that the examinable affairs of the Company include the circumstances of the transfer of its business to Tranz Holdings, whether the company has any claims arising out of that transaction against any person and, in particular Mr Pitman, and the financial ability of any person so identified to meet a claim which is successfully pursued. 62 The essence of Mr Pitman's primary submission was that the material before the Court was insufficient to warrant an exercise of power under s 596D(2). Mr Coulson, on behalf of Mr Pitman, acknowledged the general proposition that a summons may require a person who has been identified as a potential defendant in proceedings contemplated by the liquidator to produce documents as to their worth so as to permit a liquidator to ascertain and calculate the appropriateness of pursuing them in litigation. However, he submitted that merely because a liquidator had satisfied s 596B(1)(b) in respect of a person, such that they could be issued a summons to give evidence about a company's examinable affairs, it did not follow that the liquidator or court could, ipso facto, require them to produce personal financial documents as to their worth. He further submitted that some additional factor had to be shown before a court would require a person who had been issued a summons to provide such documents. At [48] and [49] of Mr Pitman's written submissions it was submitted: 48. Simply put, the question for the Court is relevant to any exercise of discretion in terms of Section 597(9) (sic) [substitute s 596D(2)] of the Act, for the production of documents going to an examinee's financial circumstances should the liquidator be required to demonstrate, any cause of action against an examinee is bona fide and truly in fact exists, or is not spurious, hypothetical, illusory or misconceived or is plausible requiring investigation to use terms well understood in terms of Part 5.4 of the Act.18 49. This is not a high threshold but a threshold nonetheless relevant to the exercise of the discretion. 63 In the course of the hearing Mr Coulson limited that submission by abandoning the suggestion that the liquidator must show a cause of action that "is bona fide and truly in fact exists". Instead he relied on the lower standard being that the liquidator had to establish that the potential cause of action was not spurious, hypothetical, illusory or misconceived. 64 Mr Pitman's primary submission that it was beyond the power of the Court to require him to produce his personal financial documents because there was no basis on which it might be concluded that he was a potential defendant in any proceeding ought not to be accepted. The material before the Court demonstrated with some clarity the potentiality of a claim which might be made against him. It is clear that he had been involved in the affairs of the Company, being the sale and disposition of its business. He assisted Mr Bell, who seemingly had some control over the management of the company, to transfer those assets. It is the nature and quality of that assistance in the particular circumstances which gives rise to the possibility that the Company will have a cause of action against him. One of those important circumstances was that the disposal of the business occurred after the Company had been deemed to be insolvent by reason of it having failed to satisfy the statutory demand, after the winding up proceedings had been commenced, and within a day or two of the date set for the hearing of the winding up application. Undoubtedly that sale and disposition is a very significant event in the Company's affairs and was fundamental to its financial position given that the transaction denuded it of assets. Another important circumstance was that the firm of which Mr Pitman was and is a director, Morgan Conley, was acting for the Company in relation to the winding up application and had been doing so for some time prior to the disposal of the business. As the chronology of events set out above discloses, it was around the time that Mr Bell was giving instructions to Morgan Conley on behalf of the Company not to oppose the imminent winding up application, that he asked Mr Pitman to provide a draft agreement to be used to effect a transfer of the Company's business to Tranz Holding. Mr Pitman submits that the content of his affidavit shows that he had little involvement in relation to the sale and that he did not give advice to Mr Bell. Even accepting that to be the case, he chose not to disclose the content of his communications with Mr Bell, nor what he was told by him. Although it is not necessary to go so far, in the circumstances where Morgan Conley was acting on Mr Bell's instructions in relation to the winding up application which was to occur within a few days, it is improbable that Mr Bell did not explain the circumstances to Mr Pitman and the reason as to why he wanted the sale agreement. In any event, it was a distinct possibility. 65 At this point it is worth observing that although Mr Pitman deposed that he was unaware that his firm was acting in the winding up of the Company, he does not claim that he did not know of the proceedings when providing assistance to Mr Bell. 66 The possibility that a claim might exist against Mr Pitman also arises from his involvement in conduct which appears to have been an attempt to conceal the timing of the transfer of the business to Tranz Holdings. It must be stressed that his involvement may have been unintentional, but whether or not it was is not a matter to be determined on this application. The affidavit of Mr Park of 8 May 2020 reveals that Mr Simmons attempted to misinform the liquidator as to the date of the transfer by alleging that it had occurred in the previous year. Subsequently, on 21 November 2018, Mr Pitman sent a number of documents to the liquidator including a copy of the purported sale agreement which had apparently been produced from the draft which Mr Pitman had provided. On the available material it appears that document had been backdated to suggest that the sale had occurred approximately 12 months prior to the date on which Mr Pitman had provided the draft to Mr Bell. Mr Pitman forwarded the backdated document to the liquidator and described it as being "A copy of the sale agreement". Had he considered it he would have known or strongly suspected that it did not accurately record the date of the transaction. The giving of that seemingly backdated document to the liquidator may have been part of a concerted plan to deceive the liquidator as to the date on which the business assets were transferred. It is not necessary to decide whether Mr Pitman was part of that plan or not. It may well transpire that he had no knowledge of it at all. 67 The liquidator submitted that the evidence of Mr Pitman's conduct in assisting in arranging the sale of the business and in the subsequent apparent attempt to mislead the liquidator about it, raises the possibility that Mr Pitman may be liable as a person who was knowingly concerned in a contravention of the Act in relation to the wrongful disposition of the Company's assets. That submission ought to be accepted. 68 The material adduced supports the possibility of the existence of that cause of action arising such that its existence or otherwise is something which the liquidator can investigate through the public examination process. It would undermine that process if the Court was to require a liquidator to establish the likelihood of the existence of a cause of action to any greater extent: GEBIE Services, [29]-[34]. After all, the process is designed to discover the existence of such causes of action not merely to confirm what is already known. The possibility of the existence of the cause of action is one of the examinable affairs and once established, it provides the foundation for the operation of s 596D(2) and the imposition of the requirement that the person summonsed also produce documents evidencing their financial worth. 69 The result is that the liquidator has established that one of the examinable affairs of the Company includes the issue of whether there exists a good cause of action against Mr Pitman. It follows that the worth of Mr Pitman as a potential defendant to that possible cause of action is also within the scope of the examinable affairs. In general terms, the documents in paragraphs 20 to 32 of the schedule to the summons relate to Mr Pitman's financial position with the consequence that it is appropriate to require their production as part of the summons.

[18]

Submissions concerning the level of certainty as to the existence of a cause of action 70 It is not necessary to reach a conclusion as to whether the liquidator's onus is to show more than that the potential cause of action is more than fanciful, improbable, spurious, hypothetical, or illusory. On the other hand, if the claimed cause of action could be so described, it is likely to fall below the descriptor of being a possibility, with the result that no relevant "examinable affair" would exist. 71 A not entirely dissimilar issue was recently considered by Rees J in Newheadspace. There, her Honour referred to a number of authorities rejecting the proposition that a liquidator was required to establish there existed a "plausible claim" against a potential examinee's before an examination summons might issue, including the decision of White J in Pobjie Agencies, where it was said (at 68 [76]): It is no part of the court's task on an application for the issue of an examination summons to discern whether or not the company has a good cause of action against the examinees or a person with whom the examinees are connected. The investigation of facts to ascertain whether or not a cause of action might exist either against such persons, or against other persons, (such as officers of the company), is a proper purpose of an examination. Such an examination is not to be pre-empted by the examinees adducing evidence directed towards demonstrating that they, or persons connected with them, could have no liability to the company. 72 It was further said by White J (at [84]) that it would be wrong to attempt to confine the discretion under s 596B to only those against whom it was identified that a plausible claim existed. 73 Whilst, those cases relate to the power under s 596B to issue a summons and not the power under s 596D(2) to require the production of documents, the same general principle is applicable. That is, the purpose of the public examination process is, inter alia, to ascertain whether a cause of action might exist in respect of various persons. Once it is shown that the intended examination is for the purpose of investigating that possibility, the power to issue a summons arises as does the power to require the production of documents which relate to it. 74 The observations of White J in Pobjie Agencies to the effect that applications for review of decisions to issue summons ought not to become mini trials of a summonsed person's liability to the company in liquidation should be accepted. A hearing reviewing the decision to order that a summons be issued is an inapposite forum for determining whether the prospective examinee actually has any liability to the company. The proceedings are interlocutory in nature and occur at a time in the winding up when the liquidator has little knowledge of the company's affairs. Further, if the liquidator was required to establish more than a claim against the prospective examinee was a possibility, the liquidator would rightly assert an entitlement to cross-examine any witness advanced to minimise the prospective examinee's involvement. In order to do that it is likely that some form of discovery or obligation to produce documents would be invoked. In this respect, the likelihood of the application to review a summons becoming substantial satellite litigation in the winding up is obvious. 75 However, putting such practical issues to one side, as a matter of principle there can be no need for a liquidator to show more than the possibility that a cause of action exists in order to secure production of an examinee's personal financial documents. Pursuant to s 596D(2) the documents only need to relate to an examinable affair of the company. Given that the examination process is an investigative one, the "examinable affair" is not the existence of a cause of action or even a probable one. It is whether a cause of action which can be identified as being a possibility actually exists and, if so, whether potential defendants to it are worthwhile pursuing. So long as the liquidator can show that a possible claim or cause of action might exist, the Court has the power to order the production of documents related to it. As in this case, that would include the personal financial documents of possible defendants. 76 For this reason, on an application to review a Registrar's order, the production of contentious affidavit evidence as to the prospective examinee's ultimate liability is of little relevance. Whilst it might establish that, as between the parties, there will be an issue to be determined in the future once all the evidence in relation to it has been tested in the course of interlocutory steps and the trial process, rarely, if ever, will such contentious evidence deny the existence of there being the possibility of a cause of action against the potential defendant. On the other hand, if the evidence adduced by the intended examinee is generally uncontentious, in that it is not open to dispute or contradiction, and conclusively eschews the possibility of a claim, there will be no examinable affair which might support an order under s 596D(2). 77 In this matter, Mr Pitman filed a number of contentious affidavits, the effect of which was intended to deny the existence of the possibility of a cause of action against him. However, accepting them at face value, they do not negate the possibility that he may be liable to the Company in relation to the disposition of its business as they do not fully exclude the possibility that he was aware of the general purpose of the transaction intended by Mr Bell. No doubt, the veracity of Mr Pitman's affidavit will be one of the issues which might be considered in the public examinations.

[23]

Documents relating to interests in trusts 85 The second ground advanced was that Mr Pitman should not be obliged to disclose documents which evidenced his financial interests in trusts on the basis that as any such interests would not be available to meet any judgment which the liquidator might secure. On that basis it was said that the documents identified in paragraphs 22, 23, 26, 29 and 31 of the amended form of summons did not relate to an examinable affair of the company; namely the prospect of recovery in respect of a company's chose in action. In advancing this submission, Mr Coulson relied upon the statements in Pleash v Tucker at 385-386 [52]-[53] and [55]: [52] … However, the exercise of assessing the ability of a prospective defendant to meet a judgment debt necessarily requires a consideration of property that can be attached or recovered in some manner and applied against the debt. [53] The ability of a prospective defendant to satisfy a judgment debt in the event that litigation is pursued by a liquidator is within the scope of such examinable affairs but we do not consider there is a proper basis to extend the scope of "examinable affairs" to a consideration of what assets outside of those that comprise a prospective defendant's property might voluntarily be directed to payment of such debt. … [55] One would not expect a liquidator to recommend to creditors that litigation be pursued against a party based only on speculation and the hope that a favourable judgment would be met by voluntary payments from the assets of a friendly third party, or by a trustee who is able legitimately to control or direct funds to other beneficiaries or, for example, from monies that the judgment debtor may choose to borrow for that purpose in the future. Absent some form of binding agreement, commitment or obligation by a trustee or other third party to make funds available, it is difficult to imagine how documents that evidence assets not owned by the defendant could properly assist the liquidator in assessing the ability of the prospective defendant to satisfy a judgment or assist in advising creditors. 86 That case concerned the question of the scope of documents which might be ordered to be produced under s 597(9) of the Act although the parties seemed to accept that similar principles apply in relation to s 596D(2). However, there the documents which the liquidator sought related to discretionary trusts of which the target defendant was one of the beneficiaries and a director of the corporate trustees. The difficulty in seeking such documents is that they did not relate to the property of the prospective defendant in that he had no proprietary interest in the trust assets and, particularly as a beneficiary of a discretionary trust, he had no right to enforce any distribution to him. The Full Court also found that a person's power of appointment was not property in respect of which judgment might be recovered. At 384 [46] it was said: The primary judge in these proceedings properly followed and applied Swishette. Both Fordyce v Ryan and Swishette address whether a beneficiary's control over a trustee operates so that the income and capital of a discretionary trust may be treated as if it were property of the beneficiary. The proposition is rejected in both and we consider the decisions to be correct and applicable in the circumstances of this case. Despite Swishette addressing a different statutory provision, the Court in both Swishette and these proceedings is concerned with the potential application of trust income and capital to meet a judgment debt. 87 It followed that the proposed examinee's interests in the discretionary trusts or the powers of appointment with respect to them, were not property against which the liquidator might enforce any judgment obtained. That being so, documents concerning those interests did not relate to an examinable affair of the company. 88 It is difficult to ascertain how the decision in Pleash v Tucker relates to the documents in paragraphs 22, 23, 26, 29 and 31. The paragraphs, in their amended form, are generally concerned with the assets of trusts of which Mr Pitman is a trustee, whereas Pleash v Tucker was generally concerned with the rights of persons as beneficiaries of trusts or with powers of appointment with respect to trusts. Although, as trustee, Mr Pitman would not have any beneficial interest in the trust assets, he may have interests in the assets which are held pursuant to the terms of the trust. As trustee he may have a right of exoneration in respect of expenses which he has incurred in that capacity and which he has discharged. In those circumstances he would have a right to be exonerated out of the assets held on the trust and in priority to the beneficiaries' claims. He would also have an equitable lien over those assets to the extent of the right of indemnity. The right of exoneration and the associated lien would be property available to meet the liquidator's claims: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 93 ALJR 807; and, to that extent, documents relating to that right would be within the scope of s 596D(2). Mr Coulson did not appear to cavil with these propositions. 89 The description of the documents in paragraphs 22, 23, 26, 29 and 31 do not indicate whether the trusts in question were discretionary trusts or otherwise and there was scant evidence as to the nature of the trusts in question. That, however, is irrelevant as the documents being sought relate to Mr Pitman's right as trustee of any trust to exoneration and not to any right as a beneficiary of the trust, be it a discretionary trust or otherwise. 90 In the application of the above principles the following can be observed as to the disputed paragraphs of the schedule to the summons as they are now advanced by the liquidator: 91 Paragraph 22 of the schedule to the summons described the following category of documents: 22. all documents which record, evidence or concern any trust of which you or the Company are or were: c. a trustee of a trust 92 Given what is said above as to the nature of the trustee's right of exoneration, the category of documents is directed to identifying assets from which Mr Pitman might satisfy any judgment against him. The decision in Pleash v Tucker, insofar as it relates to the interests of beneficiaries of discretionary trusts, has nothing to say about the interests of a trustee and their right of exoneration. This category of documents relates to an examinable affair of the Company. 93 In its amened form paragraph 23 of the schedule of the summons provides: 23. all documents which record or evidence any interest in any real property which any trustee of a trust has, or had, where you are or were: c. a trustee of such trust; 94 The comments made in relation to paragraph 22 also apply in relation to this paragraph. The documents sought relate to an examinable affair of the Company, being Mr Pitman's interest in any right of exoneration. 95 Paragraph 26 of the schedule to the summons in its amended form describes the following documents: 26. all documents which record or evidence any interest in any personal property or other asset not being real property which cost, or if not purchased, has a value of, $10,000 or more, which any trustee of a trust has, or has had, where you are or were: c. a trustee of such trust; 96 This category is also unaffected by the decision in Pleash v Tucker, in the sense that its concern is with the trustee's right of exoneration from the trust assets and not any right as a beneficiary of a discretionary trust. 97 Paragraph 29 of the schedule of the summons now provides: 29. a current bank account statement for any bank account in which any trustee, has or had, where you are or were: c. a trustee of such trust; 98 For the reasons referred to above in relation to paragraph 26, the scope of paragraph 29 does not extend beyond the scope of documents which relate to the examinable affairs of the Company. 99 The alleged invalidity of the scope of paragraph 31 was founded upon the alleged invalidity of paragraphs 22, 23, 26 and 29 in that the description of the documents sought was in the following terms: 31. the financial reports, half yearly financial reports, balance sheets, profit and loss accounts, and tax returns of any trust encompassed within 22(c), 23(c), 26(c) and 29(c) above; and 100 The documents identified in this paragraph may demonstrate the value of any right of exoneration of the trustee and, therefore, the scope of the documents described in paragraph 31 does not extend beyond those relating to the examinable affairs of the Company.

Pitman v Park

At a glance

Court

Decision date

Before

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Judgment (27 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (23)

Cited By (4)