Ariff v Fong

Case [2007] NSWCA 183

NEW SOUTH WALES COURT OF APPEAL

CITATION:    Ariff v Fong [2007]  NSWCA 183
This decision has been amended. Please see the end of the judgment for a list of the amendments.

FILE NUMBER(S):
40700/06

HEARING DATE(S):             4 June 2007

JUDGMENT DATE:               25 July 2007

PARTIES:
Stuart Karim Ariff, Jo Drysdale, S Ariff Nominees Pty Limited, S Ariff Nominees No. 2 Pty Limited, CarLovers Carwash Limited (Subject to a Deed of Company Arrangement), CarLovers Carwash (Aust) Pty Limited (Subject to a Deed of Company Arrangement), CarLovers (Maroochydore) Pty Limited (Subject to a Deed of Company Arrangement), The Carwash Kings Pty Limited (Subject to a Deed of Company Arrangement), John Sewerle, Clayton Utz and Yazni Sonia Ariff (Appellants)
Ian Kim Seng Fong (Respondent)

JUDGMENT OF:      Beazley JA Giles JA Santow JA   

LOWER COURT JURISDICTION:             Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):        3560/2006

LOWER COURT JUDICIAL OFFICER:   Barrett J

LOWER COURT DATE OF DECISION: 3 October 2006

LOWER COURT MEDIUM NEUTRAL CITATION:
Ariff v Fong [2006] NSWSC 1030

COUNSEL:
S Donaldson SC;  R Francois (Appellants)
B Coles QC;  JP Redmond (Respondent)

SOLICITORS:
Deacons (First to ninth Appellant and eleventh Appellant)
PMF Legal (Respondent)

CATCHWORDS:
CORPORATIONS – Corporations Act 2001 (Cth) Pt 5.9 - examination summonses – application by eligible applicant for examination of persons about a corporation’s examinable affairs – application for examination summonses to be supported by affidavit – affidavit not available for inspection except so far as court orders – court must be satisfied claimants have arguable case that examination summonses issued for an improper purpose before inspection allowed – whether trial judge erred in finding claimants had not shown arguable case of improper purpose

LEGISLATION CITED:
Corporations Act 2001 (Cth) ss 436A, 596B, 596C

CASES CITED:
Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69
Fetzer v Irving as liquidator of Mawson KLM Holdings Pty Limited (In liq) (2005) 91 SASR 54
Goldsmith v Sperrings Ltd [1977] 1 WLR 478
In Re Marjory [1955] Ch 600
Meteyard v Love (2005) 65 NSWLR 36; [2005] NSWCA 444
Re Leisure Development (QLD) (In Liq); Ell & Ors v Palmer (2002) 41 ACSR 276; [2002] NSWSC 248
Re Moage Limited (In Liquidation); Sheahan v Pitterino & Ors (1997) 77 FCR 81
Re Southland Coal Pty Limited (Rec Mgr Appt) (In liq) (2006) 58 ACSR 113; [2006] NSWSC 184
Varawa v Howard Smith Company Ltd (1911) 13 CLR 35; [1911] HCA 46
Williams & Ors v Spautz (1992) 174 CLR 509; [1992] HCA 34

DECISION:
1. Leave to appeal granted
2. Order the claimants to file their Notice of Appeal within 7 days of the making of these Orders and to pay the filing fee thereon
3. Appeal allowed
4. Set aside the orders made by the trial judge on 3 October 2006
5. Order that the claimants have access to the affidavit filed by the opponent in support of the issue of examination summonses to Stuart Karim Ariff, Jo Drysdale…

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AGLC
Ariff v Fong [2007] NSWCA 183
Case
[2007] NSWCA 183
Decision Date

CaseChat Overview and Summary

This case involved an appeal by Mr Ariff, a voluntary administrator, against an order of the trial judge that set aside examination summonses issued against Mr Fong and others. The dispute arose from Mr Ariff's application for examination summonses concerning the examinable affairs of companies within the CarLovers group, of which he was the deed administrator. Mr Fong, a director of these companies, and other parties sought to set aside these summonses, arguing they were issued for an improper purpose.

The primary legal issue before the appellate court was whether the trial judge erred in finding that the claimants had not demonstrated an arguable case that the examination summonses were issued for an improper purpose. This question necessitated a determination of the threshold required for claimants to gain access to an affidavit filed in support of the summonses, particularly when that affidavit was not readily available for inspection. The court also considered the principles governing the issuance of examination summonses under Part 5.9 of the *Corporations Act 2001* (Cth) and the circumstances under which an applicant might be required to prove an improper purpose before inspection of supporting evidence is permitted.

The appellate court reasoned that the trial judge had applied the relevant principles too stringently. Citing authorities such as *Fetzer v Irving* and *Re Southland Coal Pty Limited*, the court acknowledged that an applicant seeking to set aside examination summonses on the grounds of improper purpose generally bears the onus of establishing an arguable case. However, the court held that it would be unduly burdensome to require a claimant to prove an improper purpose without access to the affidavit that purportedly supports the summonses. The court found that the evidence, including correspondence and affidavits suggesting a dispute over remuneration and a desire to return control to the directors, provided a sufficient basis for an arguable case of improper purpose, warranting access to the supporting affidavit.

The appeal was allowed, and the orders of the trial judge were set aside. The court ordered that the claimants have access to the affidavit filed in support of the examination summonses, with access limited to their legal representatives, subject to any further orders of the Supreme Court. Mr Ariff was ordered to pay the costs of the appeal and the applications before the trial judge.

Orders

Orders of the court

1. Leave to appeal granted;

2. Order the claimants to file their Notice of Appeal within 7 days of the making of these Orders and to pay the filing fee thereon;

3. Appeal allowed;

4. Set aside the orders made by the trial judge on 3 October 2006;

5. Order that the claimants have access to the affidavit filed by the opponent in support of the issue of examination summonses to Stuart Karim Ariff, Jo Drysdale and John Sewerle;

6. Order that, subject to any other order, access to the affidavit be limited to access by the claimants' legal representatives;

7. Grant liberty to the claimants' legal representatives to apply to a judge in the Equity Division of the Supreme Court for any other order in respect of access to those documents, such liberty to be exercised on seven days' notice to the opponent;

8. Order that the opponent pay the costs of the appeal and of the applications before Barrett J;

9. The opponent to have a certificate under the Suitors' Fund Act 1951 (NSW) if so entitled.

Background

Background to the litigation

His Honour’s observation derives from what was said in Fetzer v Irving as liquidator of Mawson KLM Holdings Pty Limited (In liq) (2005) 91 SASR 54 at 59 [27]-[28] and in Re Southland Coal Pty Limited (Rec Mgr Appt) (In liq) (2006) 58 ACSR 113; [2006] NSWSC 184, Austin J at [104], observed that this principle was not in contention. These observations should, of course, be applied having regard to the approach suggested by Mansfield J in Re Moage Limited (In Liquidation) and adopted as correct by Austin J in Re Leisure in the manner we have discussed above. Were it otherwise, an applicant would be required to prove that the affidavit was likely to assist in determining the challenge in circumstances where the content of the affidavit is unknown.Factual background As referred to above, Mr Ariff was appointed by the directors of the companies in the CarLovers group as voluntary administrator of the companies pursuant to s 436A of the Corporations Act. On 3 November 2003, at the second meeting of creditors of the CarLovers group, the creditors of the group resolved that the companies should enter into a deed of company arrangement and that Mr Ariff be appointed deed administrator. At the meeting, a number of persons were nominated to become members of the committee of inspection of companies in the group (save for CM, in respect of which no committee of inspection was formed). Mr Sewerle was appointed as the representative of the employees of each of the companies (other than CM). Mr Robbie Fong, a director of each of the companies, was appointed to represent himself. The deeds of company arrangement were executed on 5 December 2003. On 2 September 2005, Barrett J gave judgment on Mr Ariff’s application for orders relating to approval of his remuneration under s 449E of the Corporations Act: CarLovers Carwash Ltd & Ors (2005) 54 ACSR 696; [2005] NSWSC 879. The detail of his Honour’s judgment is not relevant to the issues on the appeal save for one. Mr Ariff complains that the Berjaya group is, at the least, resisting payment of his remuneration, if not in fact, “holding him to ransom” in respect of his remuneration. The basis of this allegation is contained in the evidence which is discussed below. It is sufficient to observe at this point that on 2 September 2005, Barrett J ordered that Mr Ariff’s remuneration be fixed by the committee of inspection, or should that not occur, for Mr Ariff to have his remuneration fixed by the Court. Mr Ariff’s remuneration to which he has been entitled since 1 July 2004, has not been fixed by the committee of inspection. Nor has Mr Ariff made any application to the court in respect of his remuneration. Mr Ariff gave evidence in his affidavit sworn 12 July 2006 that he has had a difficult relationship with Berjaya over the course of the deed of administration of the CarLovers group. He listed seven areas of disputation as follows:“(a)Berjaya’s desire for responsibility for the day-to-day management of the [CarLovers group] to revert to the directors (who are associated with Berjaya);(b)the revocation by me on 9 February 2004 of my prior delegation of certain management responsibilities to the directors of the [CarLovers group];(c)various informal proposals made by Berjaya (which were later abandoned) to seek to vary the Deeds of Company Arrangement to enable the day-to-day responsibility for management of the [CarLovers group] to return to the directors;(d)requests from Berjaya (which were later abandoned) for me to assist them in relation to the due diligence and share sale process in relation to offers received by Berjaya to purchase its shareholding, and the time and costs incurred by me and my Firm in complying with those requests;(e)complaints from Berjaya in relation to the costs incurred by me and my Firm in the administrations of the [CarLovers group] in dealing with Berjaya and its solicitors in relation to the requests in items (c) and (d) above;(f)complaints from Berjaya in relation to the costs incurred by me and my Firm in relation to the day-to-day management of the [CarLovers group]; and(g)the refusal of Berjaya, or its representatives on the Committees of Inspection of the [CarLovers group], to approve my remuneration since September 2004.”

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Clayton Utz responded on the same day in these terms:“As [Mr Ariff] clearly perceives the situation to be now, [Berjaya is] trying to engineer a situation to subvert the operation of the Deeds of Company Arrangement.You should be in a position to advise [Berjaya] of the fact that [Mr Ariff] has duties to all the creditors of the Carlovers Group and simply cannot ignore the provisions of the Deeds of Company Arrangement. Our instructions stand that there will be no further inspection of the Books and Records of the Company.We confirm that we are instructed to accept service of any process [Berjaya] wish to issue in relation to this matter.” (Emphases added) Included amongst the appeal material was a photocopy of an affidavit sworn 23 August 2006, in which Mr Ariff deposed to a conversation with Adam Farnsworth, a former consultant to his firm, in which Mr Farnsworth reported a conversation with Mr Fordyce, in which Mr Fordyce said:“… ‘if [Mr Ariff] returns the company to the Malaysians [Berjaya] it will all go away and there will be no examination.” The appeal papers also included two affidavits of Yazni Ariff, both sworn 24 August 2006 and an affidavit of Kristy Anne Zander, a solicitor in the employ of Clayton Utz, having the conduct of these applications for the claimants, also sworn 24 August 2006. Those affidavits were directed to those parts of the claimant’s Amended Interlocutory Process seeking to set aside the subpoenas and notices to produce. We will return to those affidavits later in these reasons. It is appropriate, however, to first deal with the affidavit of Mr Fong, sworn 24 August 2006. Mr Fong provided a brief overview of the problems with the CarLovers group that led to the voluntary administration. He stated that in 2003, there were problems with the group that needed to be addressed. He said that in about April 2003, Mr Ariff had approached the executive director of one of the companies in the Berjaya group regarding the possibility of purchasing the CarLovers group. In his affidavit, Mr Fong deposed that at that time Mr Ariff advised that the voluntary administration regime would provide a way of dealing with and correcting the problems that the group was then experiencing. It appears that on 17 June 2003, Mr Ariff, on the letterhead of Star Dean Willcocks Crosbie (Mr Ariff then being a member of that firm), put forward a proposal for his appointment as a voluntary administrator. The letter set out proposed terms of engagement, including the following statement:“’Form of Administration and EffectThe objective of a Voluntary Administration in this instance is to enable the company to facilitate a better return to creditors than if the company was to be wound up on the date of the appointment of an Administrator. The director(s) must hand over control to the Administrator during the period from appointment of the Administrator up to approval and execution of the Deed. The Administrator is personally liable for the ongoing debts of the company incurred with his authority during the period of Voluntary Administration up to the appointment of the Deed Administrator, at which time it is intended control and stewardship will revert to the board.’ [Emphasis added]”