Commonwealth v Sheahan

Case [2004] FCA 1301

FEDERAL COURT OF AUSTRALIA

Commonwealth of Australia v Sheahan, in the matter of Markethaven Pty Ltd (subject to a deed of company arrangement) [2004] FCA 1301

COMMONWEALTH OF AUSTRALIA & ORS V JOHN SHEAHAN, IN THE MATTER OF MARKETHAVEN PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

N1105 OF 2004

EMMETT J
8 OCTOBER 2004
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N1105 OF 2004

IN THE MATTER OF MARKETHAVEN PTY LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 010 914 324

BETWEEN:

COMMONWEALTH OF AUSTRALIA
FIRST APPLICANT

RICHARD WHITING
SECOND APPLICANT

STEPHEN MYERS
THIRD APPLICANT

GILLIAN SHENFIELD
FOURTH APPLICANT

BILL WEBSTER
FIFTH APPLICANT

HENRY KILHAM
SIXTH APPLICANT

HEATHER YEATMAN
SEVENTH APPLICANT

RITA MACLACHAN
EIGHTH APPLICANT

JOHN McEWEN
NINTH APPLICANT

NOEL FRASER
TENTH APPLICANT

PIO CESARIN
ELEVENTH APPLICANT

FIONA CUMMING
TWELFTH APPLICANT

KARL SKEWES
THIRTEENTH APPLICANT

TERRY SLATER
FOURTEENTH APPLICANT

AND:

JOHN SHEAHAN
RESPONDENT

JUDGE:

EMMETT J

DATE OF ORDER:

8 OCTOBER 2004

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The examination summonses and orders for production of documents issued pursuant to the orders made on 28 July 2004 be discharged.

2.The Respondent pay all of the costs of the application for discharge reasonably incurred by the Applicants.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N1105 OF 2004

IN THE MATTER OF MARKETHAVEN PTY LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 010 914 324

BETWEEN:

COMMONWEALTH OF AUSTRALIA
FIRST APPLICANT

RICHARD WHITING
SECOND APPLICANT

STEPHEN MYERS
THIRD APPLICANT

GILLIAN SHENFIELD
FOURTH APPLICANT

BILL WEBSTER
FIFTH APPLICANT

HENRY KILHAM
SIXTH APPLICANT

HEATHER YEATMAN
SEVENTH APPLICANT

RITA MACLACHAN
EIGHTH APPLICANT

JOHN McEWEN
NINTH APPLICANT

NOEL FRASER
TENTH APPLICANT

PIO CESARIN
ELEVENTH APPLICANT

FIONA CUMMING
TWELFTH APPLICANT

KARL SKEWES
THIRTEENTH APPLICANT

TERRY SLATER
FOURTEENTH APPLICANT

AND:

JOHN SHEAHAN
RESPONDENT

JUDGE:

EMMETT J

DATE:

8 OCTOBER 2004

PLACE:

SYDNEY

REASONS FOR JUDGMENT

  1. The applicants seek the discharge of orders made by the Court under s 596B and s 597(9) of the Corporations Act 2001 (Cth). Under s 596B, the Court may summon a person for examination about the examinable affairs of a corporation if, relevantly, the Court is satisfied that the person may be able to give information about such examinable affairs. By the operation of s 9 of the Corporations Act, the term ‘examinable affairs’ has a wide meaning. Section 597(9) provides that the Court may direct a person to produce at an examination books that are in that person’s possession and are relevant to matters to which the examination will relate.

  2. On 16 July 2004 Mr John Sheahan, as joint and several deed administrator of Markethaven Pty Ltd (‘Markethaven’), applied to the Court for orders under those provisions.  Mr Sheahan said that he wished to obtain further information regarding certain matters in order to determine whether Markethaven has a cause of action against the Commonwealth of Australia (‘the Commonwealth’), in the guise…

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AGLC
Commonwealth v Sheahan [2004] FCA 1301
Case
[2004] FCA 1301
Decision Date

CaseChat Overview and Summary

The case of Commonwealth v Sheahan involved the Commonwealth as the applicant seeking the discharge of examination summonses and orders for production of documents. The respondent, Sheahan, was involved in making an ex parte application on behalf of a client, Markethaven, which had proposed examinations. The central dispute revolved around the adequacy of the disclosure made by Sheahan to the Registrar and the potential involvement of another individual, Mr Selim, in the proposed examinations. The High Court of Australia was tasked with deciding whether the Challenged Orders could be upheld given the lack of full, frank, and candid disclosure by Sheahan.

The legal issues before the Court included whether the Challenged Orders could stand if there was no absolute entitlement to such orders even in the absence of impropriety of purpose, and whether Sheahan’s failure to disclose all relevant circumstances warranted the discharge of the orders. The Court had to determine whether the failure to disclose the possible difficulties with the putative cause of action and the involvement of Mr Selim constituted a significant breach of the duty of disclosure. The Court also considered whether the orders could be discharged in light of this failure and whether costs should be awarded on an indemnity basis.

The Court concluded that the Challenged Orders could not stand because they were based on a lack of full, frank, and candid disclosure by Sheahan. The Court found that Sheahan had failed to outline the possible difficulties with the putative cause of action, particularly in the context of Mr Selim’s involvement. This failure was significant enough to warrant the discharge of the examination summonses and orders for production. The Court also ruled that the Commonwealth was entitled to its costs for the application for discharge, and it was appropriate for Sheahan to pay all costs incurred by the Commonwealth on an indemnity basis due to the breach of the duty of disclosure.

The final orders of the Court were to discharge the examination summonses and orders for production of documents issued on 28 July 2004. Additionally, Sheahan was ordered to pay all the costs of the application for discharge reasonably incurred by the Commonwealth. This ruling underscored the importance of full and transparent disclosure in legal proceedings and the consequences of failing to meet the duty of disclosure to the Court.

Orders

Orders of the court

1. The examination summonses and orders for production of documents issued pursuant to the orders made on 28 July 2004 be discharged.

2. The Respondent pay all of the costs of the application for discharge reasonably incurred by the Applicants.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

EMMETT J
Ultimately, it is a matter for the Court, in the exercise of its discretion, whether to make orders in the nature of the Challenged Orders. That is to say, subject to the discretion being exercised judicially, there is no absolute entitlement to orders in the nature of the Challenged Orders even if there were no impropriety of purpose. Even if Mr Sheahan’s predominant or principal purpose was not to benefit Mr Selim, it may have been an important purpose. Having regard to the involvement of Mr Selim, the possible difficulties in the way of the putative cause of action propounded by Mr Sheahan on behalf of Markethaven take on a greater significance. In the context of the possible involvement of Mr Selim in the promotion and funding of the proposed examinations, it was incumbent on Mr Sheahan, in making full, frank and candid disclosure, to outline to the Registrar the possible difficulties with the putative cause of action in the context. He failed to do so. CONCLUSION I have already indicated that the Challenged Orders could not stand in the form in which they were made. That is to say, orders could only be supported on the basis that the documents to be produced by the Commonwealth would be as described in the amended schedules agreed by the parties. Accordingly, the orders for production addressed to the Document Recipients and to the Commonwealth should be discharged in any event. However, I consider that none of the Challenged Orders should stand, having regard to the want of full, frank and candid disclosure by Mr Sheahan. The discharge of the examination summonses and orders for production would not, however, necessarily preclude a fresh application. In any such fresh application, the precise relationship between Mr Sheahan and Mr Selim and the circumstances in which Mr Sheahan came to be involved with Markethaven, together with possible difficulties with the putative cause of action, would have to be disclosed in full, to enable the Court to make an informed decision as to how the discretion should be exercised. COSTS I have concluded that the application for discharge should succeed on the ground of a want of full, frank and candid disclosure when the application for them was made to the Registrar. As a consequence, the Commonwealth is entitled to its costs of making the application for discharge. However, the Commonwealth seeks costs on an indemnity basis. Mr Sheahan and those acting for him on the ex parte application failed in their duty to the Court. They were under an obligation of full, frank and candid disclosure of all the circumstances that might be relevant to the exercise of discretion by the Court. It is possible that, had there been full, frank and candid disclosure, the Challenged Orders would not have been made. Even if they would have been made upon full, frank and candid disclosure, the present application would have been quite unnecessary. In the circumstances it is appropriate that Mr Sheahan pay all costs reasonably incurred by the Commonwealth in the application for discharge.

Ratio Decidendi

Legal Principle Established

Established by: EMMETT J

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