Harris Scarfe Holdings Ltd & Ors No. Scciv-01-943

[2001] SASC 283
HARRIS SCARFE HOLDINGS LTD ACN 009 476 073 (RECEIVERS AND
MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) AND ORS
Appeal From A Master
Civil (Ex Tempore)

LANDER J. This is an appeal from a decision of a Master made last Friday, 3 August.
The applicants issued an application on 2 August 2001 seeking a number of orders under s 596F of the Corporations Act 2001:
“1.Pursuant to section 596F(1)(d) of the Corporations Act [2001], the examination of Alan Hodgson to be held on 6 August 2001, the examination of Daniel McLaughlin to be held on 7 August 2001, the examination of Ronald Baker to be held on 7 August 2001, the examination of Brian Lilley to be held on 9 August 2001 and the examination of Ian Painter to be held on 10 August 2001 and any adjournment or continuation of those examinations (‘the Examinations’) be held in public, but the following persons be excluded from the Examinations:
1.1any person or entity to whom a summons for examination is or has been directed in relation to the Harris Scarfe group pursuant to section 596A or 596B of the Corporations Act [2001] (‘the Examinee’);
1.2any partner, employee or related entity of the Examinee; or
1.3any advisor to or agent of the Examinee;
(collectively ‘the Excluded Persons’).
2.Pursuant to section 596F(1)(e) of the Corporations Act [2001], the Excluded Persons not be entitled to access the documents produced to this Court (unless originally produced by them) or the records of the Examinations, including but not limited to the transcript of Examinations (unless it is a transcript of their own examination).
3.Until further order, pursuant to section 596F(1)(f) of the Corporations Act [2001], the communication of the contents of the Examinations specifically addressed to the Excluded Persons is prohibited.
4.Any application for access to or copy of, the written record of the Examinations shall be referred to Judge or a Master of this Court and be made by formal application with notice to the Receivers and Managers.
5.The costs of this hearing be reserved.
6.Liberty to apply.”
Last Friday a Master made orders in part dismissing the application and in part allowing it. It is not entirely clear what orders were made by the Master and that is no criticism of the Master, he has not had the opportunity yet of settling his orders but I think the orders are in the following terms:
1.Paras.1 and 3 of the applicants’ application is dismissed.
2.Pursuant to s596F(1)(e) of the Corporations Act no person or organisation may have access to documents produced to this Court, unless originally produced by them without first obtaining an order from a Master or Judge.
3.Until further order pursuant to s596F(1)(e) of the Corporations Act no person or organisation may have access to the transcript of an examination, other than the receivers and managers and their legal advisers and the person examined and his or her legal advisers.
He also made some consequential orders adjourning an examination of one the examinees.
The applicants sought to be heard by way of appeal on Friday afternoon. The matter was called on and adjourned until this morning to allow the applicants and the parties to consider their positions. The appeal has proceeded this morning. The applicants have handed up an amended notice of appeal which the applicants have undertaken to file.
The applicants complain about the Master’s orders and seek the following further orders:
“1.That Alan Hodgson, Daniel McLaughlin, Ronald Baker, Brian Lilley and Ian Painter, (the “examinees”), each be excluded from attending at the public examination of all other examinees;
2.That Alan Hodgson, Daniel McLaughlin, Ronald Baker, Brian Lilley and Ian Painter not be informed (directly or indirectly) of the evidence given at the examinations of other examinees by communications specifically addressed to those persons;
3.That the agents or representatives of the examinees each be precluded from attending at the public examinations of examinees, other than that of the person whom they represent.”
They also seek further consequential orders as to costs.
The order appealed from is an interlocutory order and therefore it is appropriate to bring this appeal to a single Judge: r 106.05
The matter has been dealt with urgently because the first examination is to take place at 10 o’clock this morning. It was therefore necessary to deal with the appeal before the hearing of that examination, otherwise the examination would had to have been adjourned.
It is also necessary that I announce my decision before 10 o’clock so that the examination can proceed with whatever directions are appropriate under s596F. It is also necessary that I give my reasons for my decision at this time in case other applications are made by any of the parties under s 596F of the Corporations Act.
The subject matter of the enquiry is the demise of the Harris Scarfe Group. The matter has generated much public interest in South Australia, and will be the subject I think of much public interest in the future. I expect that these examinations themselves will generate a good deal of public interest.
A number of orders have been made for the examination of different persons. The five persons named in the notice of appeal have had appointments made for their examinations. The first three persons are former employees of Harris Scarfe’s. The fourth and fifth persons are auditors who belong to two different audit firms who were the auditors of the Harris Scarfe Group over the last few years.
Orders have also been made for the examination of six directors of the Group, but no dates have yet been set for their examination.
The directors were not served with this application and have not been served with the notice of appeal. However there has been a communication between the solicitor for Mr Painter and the solicitors for one of the directors.
That director’s solicitors have been informed that this application has been made and the orders made by the Master. Otherwise, however, the directors have not had notice of this application. That they were not served shows that the original application to the Master was doomed to fail. The orders sought were far too wide in circumstances where the directors had not been served. The orders sought would have stripped them of their rights without the directors first having had the opportunity to be heard. In those circumstances it seems to me that the orders made by the Master were inevitable, at least in that regard.
Of course, on this appeal the applicants seek to limit the orders significantly from those orders sought in the original application. The orders now sought could only apply to those persons who have been served.
I am not sure whether it is proposed to examine any other persons apart from the five persons named in the amended notice of appeal and the directors. If it is, of course those persons will not be bound by whatever orders were made on this appeal.
There has been no cross-appeal against the orders made by the Master limiting access to the documents produced to the court, and limiting access to the transcript of the examinations. In those circumstances, the proposed examinees will not be entitled to any access to any of the documents produced to the Court, unless they were originally produced by them. They will also not be entitled to the transcript of the examination of any of the other examinees, unless the court allows.
The Receivers and Managers have accepted that it would be appropriate to conduct the examination in public, and therefore make no application under s597(4) for holding the examination in private. The Receivers have accepted the appropriateness of a public enquiry because as their solicitor has deposed in his affidavit there is a public interest in this matter and generally the court would hold such examinations in public.
It is clear, I think, on the Receiver’s affidavit and from what has been said from the bar table, that it is likely that there will be a good deal of media interest in the examinations. It is likely that the media will publish in the general press or the financial press, matters which have been inquired into by the examiner. It is likely therefore that the examinees who are not then being examined will be informed through the media of at least some part of the examinations of the other examinees.
The question on this appeal is whether the Master erred in the exercise of his discretion in refusing to make the orders sought by the applicant in their amended form. In my opinion the original orders could not have been made for the reasons I have already advanced and, for the further reasons that the orders sought were far too wide. This is because they were incapable of being policed and the original orders sought would have restrained the media from reporting matters in the examination and thereby have made effectively the public examination, in part, private.
In my opinion, in those circumstances, the Master was right to refuse the orders which he did. It is not for me to comment, because there has been no cross-appeal, whether the Master was right to have made the orders that he did make.
The examination process allows for two types of examination: a mandatory examination under s596A; and a discretionary examination under s596B. The persons who may conduct an examination are those identified in the dictionary section, s9. In this case the eligible applicants are the Receiver and Managers who have been appointed to protect the interests of the secured creditors. I have been told from the bar table and, of course, I accept, that the Receivers and Managers have been authorised in writing by the Commission to make the application under part 5.9 of the Corporations Act.
The inquiry which the Receivers wish to conduct is, at this stage, to determine why it was that Harris Scarfe collapsed in the circumstances and as suddenly as it did. It may be, as Mr Whitington QC has said on behalf of the Receivers and Managers, that information will come forward which might suggest that a chose in action is available to the company against one or other of the examinees. However, that is not the principal reason for the inquiry at this stage. The principal reason is simply to inquire into the reasons for the demise of the company.
Sections 596A, 596B and 9 show that there are a wide class of persons who may examine under Part 5.9 for any number of different reasons to obtain information or evidence for any number of different purposes. For those reasons it seems to me that s 597F must be very wide in its terms. It must attempt to cater for all sorts of examinations.
No order can be made under s596F unless the applicant can satisfy the court that there is a need for such an order. An eligible applicant, whatever that person’s status, cannot assume that there is a right to such an order without advancing appropriate reasons. The powers given under part 5.9 are very unusual and they are very wide. They have the capacity to interfere substantially with person’s rights. It is necessary that the powers be monitored by the court, and indeed by the public, so as to ensure that persons who may be subject to the compulsory procedures under part 5.9 are not adversely affected. For that reason I think s 597(4) has been enacted so as to allow the public access to examinations and thereby allow the public to scrutinise examinations of this kind so as to ensure that the powers given to eligible applicants are not abused.
There needs, therefore, to be a reason or reasons for making an order under s596F. The reasons, of course, must be compelling enough to override the practical reasons for not making orders of the kind sought. There are good practical reasons for not making orders of the kind sought. The examination is more likely to be efficiently conducted if the proposed examinees know the subject matter of the inquiry and are aware of the particular matters to be inquired into. If the examinees were aware of those matters the proposed examinees would have the opportunity to remind themselves of any facts which they may be called upon to disclose to the court.
There, of course, are circumstances where it would be better if the examinees did not know of the subject matter of the inquiry. I referred to those circumstances in Simionato v Macks (1996) 19 ACSR 34. Sometimes an eligible applicant might suspect that an examinee has been guilty of criminal conduct, fraud or defalcation. Sometimes it is necessary to ascertain and trace assets. In those circumstances it would often be better that the examinees were completely unaware of the matters to be inquired into. There will be, as I alluded to in Simionato v Macks, (supra) circumstances where the whole examination process would be thwarted if orders were not made under s 596F.
However, orders of the kind should not be made simply because they are sought. There must be a reason as I have said for the exercise of the discretion.
In this case, there has been no suggestion put forward that any of the proposed examinees are suspected to be guilty of any criminal conduct, fraud or defalcation. There is no suggestion that there might be a conspiracy between the examinees or any of them. This enquiry does not seek to ascertain the whereabouts of assets.
The examination is, as I have said, to determine why it was that the company failed so suddenly. I think in due course the examination may widen to inquire into the conduct of persons who had responsibilities to the company and whether those responsibilities were exercised to the standard expected.
The applicants have put no reason forward for the making of the order. In para.5 of the applicants’ solicitor’s affidavit it is said that issues will arise in the examinations as to the respective participation of various persons in conduct which has led to the financial demise of the Harris Scarfe group. It is said that such issues include the knowledge and authorisation of such conduct.
With respect, in all corporate failures those issues arise. There is nothing in that paragraph which suggests that this matter is any way out of the ordinary or that the integrity of the examination process requires any order of the kind sought under s596F. There is no reason in my opinion to exclude all of the proposed examinees from each of the other examinees’ examination.
There may be a particular reason why one examinee might be excluded from any other examinee’s examination. If for example it was asserted that one of the auditors acted in concert with one of the former auditors and it was necessary that they not be aware of each other’s evidence it might be necessary to make such an order but nothing of that kind is asserted.
In my opinion the Master was right to refuse the orders sought, and in my opinion no further orders should be made of the kind sought on this appeal. It will be a matter for the Receivers and Managers whether they wish to bring forward further evidence for specific orders relating to specific persons.
As this was an interlocutory order the Receiver and Managers are not thereby prevented from bringing any further applications.
However, on the evidence presently before me, in my opinion the appeal must fail and the appeal will be dismissed.
I order the appellant to pay the costs of Mr Lilley, Mr Painter and Mr McLaughlin, and I certify for senior counsel.

[2001] SASC 283

6 August 2001