Albarran (Liquidators), in the matter of Equititrust Limited (in liq) v Steer
[2013] FCA 597
FEDERAL COURT OF AUSTRALIA
Albarran (Liquidators), in the matter of Equititrust Limited (in liq) v Steer [2013] FCA 597
Citation: Albarran (Liquidators), in the matter of Equititrust Limited (in liq) v Steer [2013] FCA 597 Parties: RICHARD ALBARRAN, BLAIR ALEXANDER PLEASH AND GLEN PETER OLDHAM IN THEIR CAPACITY AS LIQUIDATORS OF EQUITITRUST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ABN 74 061 383 944) v MR PAUL STEER File number: QUD 618 of 2012 Judge: LOGAN J Date of judgment: 29 May 2013 Catchwords: CORPORATIONS – application to set aside an examination summons issued under s 596B of the Corporations Act 2001 (Cth) – applicant a senior partner at a firm that provided auditing and other financial services for the company now in liquidation – whether summons oppressive – summons seeks production of auditing documents, the location of which is such that it would require the searching of individual computer databases – time consuming search task, however narrow class of documents sought Legislation: Corporations Act 2001 (Cth) s 596B Date of hearing: 29 May 2013 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 19 Counsel for the Applicant: Mr C Wilkins Solicitor for the Applicant: Thomsons Lawyers Counsel for the Respondent: Mr J Arnott Solicitor for the Respondent: Allens Linklaters
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 618 of 2012
IN THE MATTER OF EQUITITRUST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ABN 74 061 383 944) BETWEEN: RICHARD ALBARRAN, BLAIR ALEXANDER PLEASH AND GLEN PETER OLDHAM IN THEIR CAPACITY AS LIQUIDATORS OF EQUITITRUST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ABN 74 061 383 944)
Applicants to the Examination SummonsAND: MR PAUL STEER
Respondent to the Examination Summons
JUDGE:
LOGAN J
DATE OF ORDER:
29 MAY 2013
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.The application filed on behalf of Mr Paul Steer dated 2 April 2013 be adjourned to a date to be fixed.
2.In relation to the Further Amended Examination Summons dated 21 March 2013 and, subject to further order of the court or agreement between the parties, the applicant will not call upon (and Mr Steer is not obliged to produce) any of the books requested by that summons except documents identified in paragraph 1(e), 1(f)(ii), 1(f)(iii) and 1(f)(xxi).
3.Mr Steer be relieved from compliance with so much of paragraph 1(e) as would require production of any documents other than those documents held in hard copy files or which can be identified through a search of KPMG’s Docshare system as described at paragraph 31 of Mr Harris’ affidavit sworn 2 April 2013.
4.The documents to be produced pursuant to order 2 above be produced to the Court on 23 July 2013.
5.Costs of the application are reserved.
6.Liberty to apply on 3 days’ notice.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 618 of 2012
IN THE MATTER OF EQUITITRUST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ABN 74 061 383 944) BETWEEN: RICHARD ALBARRAN, BLAIR ALEXANDER PLEASH AND GLEN PETER OLDHAM IN THEIR CAPACITY AS LIQUIDATORS OF EQUITITRUST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ABN 74 061 383 944)
Applicants to the Examination SummonsAND: MR PAUL STEER
Respondent to the Examination Summons
JUDGE:
LOGAN J
DATE:
29 MAY 2013
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Mr Paul Steer, who is a partner in the accounting firm, KPMG, has applied set aside a summons directed to him under s 596B of the Corporations Act 2001 (Cth) (Corporations Act) and the related Federal Court (Corporations) Rules 2000 (Cth). The application concerns the width of the burden and the nature of the burden imposed upon Mr Steer by that summons. The liquidators, Mr Albarran, Pleash and Oldham of Equititrust Limited (receivers and managers appointed) (in liquidation), have, by their legal advisors, endeavoured to reach agreement with those advising Mr Steer in relation to whether all of the objections which have been taken to the summons will be pressed. That had the result today that, in the first instance, the liquidators will seek the production of those classes of document referred to in paragraph 1(f)(ii), (iii) and (xxi) of the summons and also, paragraph 1(e). The documents falling within paragraph 1(f) are no longer the subject of controversy in terms of the requirement for their production. That in paragraph 1(e) remains controversial; I shall return in more detail to the class of documents sought in that paragraph of the summons shortly. As to the balance, the position reached is that, whilst the liquidators reserve the right to call for the production of the documents referred to in the other paragraphs of the summons, they do not propose to do so on 23 July 2013, which is the day appointed for the commencement of Mr Steer’s examination before a registrar.
The result, then, is that all that is necessary for determination today is whether there is a basis for setting aside or modifying the requirement prima facie made by summons of Mr Steer by paragraph 1(e). That seeks the production of the following:
1.All documents (including without limiting the generality of the foregoing, all files, electronic records, including backup tapes, books, records, minutes, board minutes, board papers, reports, draft reports, notes, working papers, memoranda statements, (including bank statements and financial statements), accounting records, emails and correspondence and copy correspondence in your possession or subject to your control that fall within the following descriptions:
…
(e)A copy of any letters of engagement and retainer agreements between KPMG and Equititrust since KPMG’s appointment as auditor of Equititrust in or about 2001.
For present purposes, it is as well also to give a little detail of paragraph 1(f) of the summons. That seeks for each of Equititrust, the funds and any of Equititrust’s related entities, if not already produced in relation to the items listed above, copies of inter alia documents recording auditor independence approvals, audit files and the like.
Putting the matter generally, Equititrust is one of a number of spectacular corporate failures which have proved to be a sequel to what has been popularly termed the “Global Financial Crisis”.
It is to be remembered, in relation to liquidators, that they fulfil a public duty as officers of the court, as well as a duty to those who are interested in the affairs of the company in a financial sense, principally creditors, both secured and unsecured. In discharging that duty, liquidators necessarily undertake it initially from a position of ignorance in relation to what the Corporations Act terms the examinable affairs of the company. They, after all, axiomatically, did not have the management of the company prior to the making of a winding up order nor, materially, did the liquidators have the conduct of the audit of the company’s financial affairs. It was not contested, nor with respect, could it have been, that the classes of document which fall within paragraphs 1(e) and 1(f) fall within the “examinable affairs” of the company. What was put in relation to paragraph 1(e) was that the nature of the burden placed upon Mr Steer was such that it was oppressive to require his compliance with that obligation.
It was not put, in relation to that particular paragraph, that there was some additional element of oppression flowing from an obligation to, for example, make value judgments as to whether or not there existed a relevant connection between a particular document and the description of document in the summons.
There is no doubt, even on the material read today, that the liquidators had a basis for seeking the documents referred to in paragraph 1(f). It is, in effect, common ground that KPMG undertook the role of auditor. For the liquidators, it is submitted that paragraph 1(e) documents are necessary so that they have a complete understanding as to the role undertaken by KPMG. It is certainly a liquidator’s role to be inquisitive and as I have said, they approach that role from a position, at the outset, of ignorance. A purpose of the issuing of summonses under s 596B is to remove that ignorance.
The burden principally faced by Mr Steer and those who would, under his direction, undertake the task of searching for documents, is that, prior to 2008, there was not a comprehensive electronic database of documents maintained. It is just a fact of commercial life that progressively, information, including documentary databases, have moved from paper to electronic form. It is the documents in respect of the earlier era that present the burden for Mr Steer.
The difficulty about that is that there is also, in this case, a burden faced by the liquidators, arising from the coincidence of the time when KPMG made a transition from paper to electronic documentary databases with the commencement of what one might apprehend would be the start of limitation periods. It is necessary to mention that because one of the duties which the liquidators must fulfil is forming a view as to what are the assets of the company in liquidation and those assets include, perhaps, causes of action against those who either, in breach of contract or in breach of tortious duty, failed to fulfil obligations to the corporations. Auditors, unsurprisingly, in the context of a spectacular insolvency, come to mind to liquidators in this regard. Thus, looming perhaps, and it is neither necessary, nor possible, to do other than voice the description, “perhaps”, looms an expiry of limitation periods.
That, in turn, intrudes on the balancing exercise which it is necessary to undertake in respect of deciding whether it is oppressive to require compliance with paragraph 1(e). I use the term balancing exercise because on the authorities and in this particular context, a balance must be struck between the public interests served by the liquidation of a company and the burden placed on those who are the recipients of summonses to produce documents.
There is, on the evidence, some holding of electronic materials, as well as paper materials, relating to the engagement of KPMG by Equititrust. Whether that engagement is wider than an audit role remains to be seen. The point made though, on behalf of Mr Steer and grounded in affidavit evidence of Mr Harris is that, whilst there were electronic holdings before the database era, they are not able, readily and generally, to be searched. Instead, what would be necessary as far as the electronic information holdings are concerned, is an individual search of particular computer records.
It would seem, as well, that, apart from individual computer records, there are some 140 hard copy files that, at least on an initial assessment to which Mr Harris deposes, may contain documents which would fall within the categories set out in the summons. Mr Harris’ estimate is that it would take some 80 hours of the time of a person (Mr McClelland) to review those files so as to identify documents which respond to the summons. That 80 hours is made up not just of Mr Harris’ time but also includes those who would work under his supervision. The estimate also relates to an examination for documents responsive to all of the categories of documents set out in the summons, not simply paragraph 1(e).
There are, of course, a number of ways in which the liquidators might ascertain whether documents falling within paragraph 1(e) exist or more particularly, whether or not the engagement of KPMG was wider than that of auditor. One way would be by a staged process, which would see Mr Steer orally examined as to whether or not the engagement was wider with a consequential requirement of production of documents thereafter if his answer proved to be in the affirmative. Another way would be just to require compliance of the summons. Yet another way, and it is the way which, albeit at the risk of appearing Solomon like has attraction for me, is to require a limited search in the first instance of paper documents, as opposed to electronically held documents.
What particularly influences me that there is a need for at least some compliance with paragraph 1(e) is the contingency that limitation periods may be running and may be expiring. It seems to me, in these circumstances, that the liquidators were right to press for an understanding of the nature of the engagement. The only question is whether, in the particular and peculiar circumstances of the way in which documents were held at the time, it would be oppressive to require searching of individual computer databases.
Taking into account Mr Harris’ evidence in that regard, the view that I have reached is that there is an element of oppression in that, in the first instance. The reasons for that are that it does entail a negative search across a number of individually held computer databases. I do not doubt the time-consuming aspect of that. I do not see the same burden falling on Mr Steer and those acting at his direction in relation to the paper files. It is a very narrow class of document that is sought in paragraph 1(e); it would not take a well-briefed and competent subordinate much effort to turn up such documents in those files if indeed, they do exist, nor would it take much effort so to do, given that it is not until 23 July that production is sought. Of course, to say that there is not much effort is not to say that there is no effort, but the burden does not strike me as an unreasonable one.
One feature of the summons, which is a feature to be avoided in the future, is an absence of any happy correlation between the preamble part of paragraph 1 of the summons and the individual categories of document which are then specified. In other words, one sees, in the preamble, a reference to bank and financial statements. Quite how that gels with, for example, paragraph 1(e) is a very moot point indeed. No point though, was taken about that, which is indicative of a commendable spirit on the part of Mr Steer.
Equally, the liquidators have commendably reached a position whereby a staged production is to be sought of Mr Steer. That, in turn, means that other questions concerning the validity of the productions sought by the summons are not for today.
The result then is that I direct that Mr Steer be relieved from compliance with so much of the requirement imposed upon him by paragraph 1(e) of the summons as would require the production of other than paper documents. The further direction I make is that in lieu of its present wording, the terms of paragraph 1(e) of the summons are to be all paper documents that fall within the following description:
(e)A copy of any letters of engagement and retainer agreements between KPMG and Equititrust since KPMG’s appointment as auditor of Equititrust in or about 2001.
I further direct that Mr Steer be relieved from compliance with so much of paragraph 1(c) of the Summons as would require production of any documents other than those documents held in hard copy files or which can be identified through a search of KPMG’s Docshare System as described at paragraph 31 of Mr Harris’ affidavit sworn 2 April 2013.
I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 17 June 2013
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