Harvey v Liquidators of Normans Wines Ltd (REC & Man App) (in Liq) No. Scciv-02-1364

[2003] SASC 192

HARVEY & ORS v BURFIELD AND  SMITH AS LIQUIDATORS OF NORMANS WINES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQ)

[2003] SASC 192

Civil

1. BESANKO J: I have before me three interlocutory applications under rule 11.5 of the Corporations Law Rules 2000 (SA) for the setting aside of orders made by Master Bowen Pain on 1 October 2002 and the discharging of summonses issued in accordance with those orders on 2 October 2002. On 1 October 2002 the Master made orders under ss 596B and 597 of the Corporations Act 2001 for the examination of Mr Stephen Thomas Harvey and Ms Catherine Gae Flower respectively (“the examinees”) and for those persons to produce certain documents at their respective examinations. The examinees were members of Deloitte Touche Tohmatsu (“Deloitte”), a firm of chartered accountants and registered company auditors. The Master also made an order that Deloitte produce certain documents relating to the examinable affairs of the company in liquidation. I will refer to the orders and summonses which are challenged as the “relevant orders”.

2. The applicants for the relevant orders were Mr Timothy Paul Burfield and Mr Anthony Stevens Smith who are the joint liquidators of Normans Wines Limited (Receivers and Managers Appointed) (In Liquidation) (“the company”).  They were appointed joint liquidators by a resolution passed at a meeting of the company’s creditors held on 24 September 2001.  Prior to that date they had been appointed administrators of the company on 27 August 2001 by a resolution of the directors.  The major secured creditor of the company, the Australia and New Zealand Banking Group Limited, had appointed receivers and managers to the company on 30 July 2001.

3. The company was a public company listed on the Australian Stock Exchange which was engaged in the production of wine for sale, both in the bulk and bottled wine markets in Australia and overseas.  The company owned a number of vineyards in South Australia and Victoria, wineries at Monash and Clarendon in South Australia and a bottling line located at Northcote in Victoria.  It is alleged (and appears not to be disputed) that for a number of years prior to the liquidation of the company, Deloitte audited the company’s accounts and those of its controlled entities.

4. The examinees and Deloitte submit that the liquidators sought the relevant orders for an improper purpose and that they failed to make full and frank disclosure to the Master.  They further submit that the Master failed to give adequate consideration to the question of whether the relevant orders should be made.  They submit that the relevant orders should not have been made having regard to an offer to co-operate made by the examinees.  They submit that they have an arguable case as to each of these submissions and that the Court should make an order under s 596C(2) giving them leave to inspect the affidavits filed in support of the liquidators’ applications before finally determining the interlocutory applications.

5. Before turning to consider these arguments, it is convenient to set out those facts which are not in dispute.

   The Facts

6. On 13 March 2002 one of the liquidators, Mr Burfield, instituted an action in this Court (Number 374 of 2002) seeking orders for the examination of the examinees under Part 5.9 Division 1 of the Corporations Act.  I will refer to this action as “the earlier action”.  At all times Mr Burfield’s solicitors in the earlier action were Johnson Winter Slattery (“JWS”) and at least after 31 May 2002 his counsel was Mr Mark Hoffmann.

7. In early April 2002 the orders sought by Mr Burfield were made.  They are similar to those presently in issue.  The examinees brought interlocutory applications to have the orders set aside and the summonses discharged. The interlocutory applications were opposed by Mr Burfield.  He swore an affidavit on 15 May 2002 wherein he deposed to his purpose in seeking the orders in the following terms:

   “4.  I say that my predominant purpose in seeking the Orders was:

   4.1    to provide me with information in considering whether there is a cause of action upon which I might proceed in the recovery of funds on behalf of the creditors of Normans;

   4.2    to provide me with information in connection with proceedings which I believe I may be able to bring against the directors of Normans and against the auditors of Normans.”

8. The applications to set aside the orders and discharge the summonses came on for hearing before Master Bowen Pain on 18 June 2002.  On 18 July 2002 the Master dismissed the applications.  The examinees appealed from the Master’s orders by Notice of Appeal dated 24 July 2002.  The examinations and production of documents were due to come on before the hearing of the appeal.  The examinees applied for a stay of the orders.  As a result of an agreement between the parties reached on 2 August 2002 the orders for examination and production of documents were stayed upon the examinees giving the following undertaking:

   “Upon the applicants by their counsel having undertaken to the Court that they will produce to the Court this day true copies of the documents (originals of which have been produced to the Australian Securities & Investments Commission in response to a notice) which relate to advice provided to Normans Wines Limited connected with transactions between Normans Wines Limited and Wisher McDonagh Holdings Pty Limited.”

9. On 2 August 2002 the examinees produced documents in accordance with the undertaking.  The liquidators were given leave to inspect and copy the documents.  I will refer to the documents produced pursuant to the undertaking as the “Wisher McDonagh documents”.  There was a dispute between the parties as to whether the examinees had fully complied with the undertaking.  It is unnecessary for me to set out the details of that dispute or to resolve it.

10. The appeals of the examinees in the earlier action came on for hearing before a Judge of this Court.  On 20 September 2002 Perry J held that the applications for orders were incompetent by reason of the fact that they were brought only in the name of Mr Burfield rather than in the name of both liquidators (Harvey and Anor v Burfield a Liquidator of Normans Wines Ltd (2002) 84 SASR 11). The orders were therefore invalid and the Judge set them aside. It was unnecessary for the Judge to deal with the other arguments advanced by the examinees.

11. On the same day that Perry J made his decision on the appeal in the earlier action, Sandhurst Trustees Limited (“Sandhurst Trustees”) commenced an action in this Court against Deloitte.  In that action it is alleged that in 1999 the company executed a convertible note Trust Deed between the company and Sandhurst Trustees dated 1 July 1999 and issued convertible unsecured notes pursuant to a prospectus dated 12 July 1999.  Under the Sandhurst Trust Deed, Sandhurst Trustees was appointed trustee and agreed to perform the obligations under the Trust Deed for the benefit of the holders of the convertible unsecured notes.  It is alleged that Deloitte was engaged by the company to carry out audits of the company’s accounts for the financial years from 30 June 1995 to 30 June 1999 inclusive.  It is alleged that in July 1999 Deloitte was engaged by the company to carry out further tasks in relation to the Sandhurst Trust Deed and the prospectus.  It is alleged that Deloitte owed various duties to Sandhurst Trustees including a duty of care at common law, a statutory duty under the Corporations Law and duties imposed by s 56 of the Fair Trading Act 1987 (SA). It is alleged that by reason of certain transactions the company’s accounts for the year ending 30 June 1998 and the Deloitte prospectus report dated 12 July 1999 were not true and fair. Transactions between the company and Wisher McDonagh Holdings Pty Limited (“Wisher McDonagh”) were identified as transactions (together with other transactions) which led to the conclusion that the company’s accounts for the year ending 30 June 1998 and the Deloitte prospectus report dated 12 July 1999 were not true and fair. It is also alleged that the company’s accounts for the financial year ending 30 June 1999 were not true and fair. It is alleged that Deloitte acted in breach of its various engagements and duties and that Sandhurst Trustees suffered loss and damage as a result. The solicitors and counsel acting for Sandhurst Trustees at the time the action was instituted were JWS and Mr Hoffmann respectively. I mention at this point that JWS no longer act for Sandhurst Trustees. They ceased acting sometime before 12 February 2003. Mr Hoffmann was retained only to assist in the settling of the statement of claim.

12. Mr Burfield did not appeal from the orders made by Perry J.  Instead both liquidators commenced the present action (Number 1364 of 2002) on 26 September 2002.

    The Corporations Act 2001

13. The relevant provisions of the Corporations Act 2001 are as follows:

    “596B(1)    [Grounds for discretionary examination] The Court may summon a person for examination about a corporation’s examinable affairs if:

    (a)     an eligible applicant applies for the summons; and

    (b)     the Court is satisfied that the person:

    (i)has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or

    (ii)may be able to give information about examinable affairs of the corporation.

    (2)   [Limitation]      This section has effect subject to section 596A.

    …

    596C(1)    [Applicant to file affidavit] A person who applies under section 596B must file an affidavit that supports the application and complies with the rules.

    (2) [Affidavit not available for inspection]         The affidavit is not available for inspection except so far as the Court orders.

    …

    596D(2)    [Production of books in person’s possession]         A summons to a person under section 596A or 596B may require the person to produce at the examination specified books that:

    (a)     are in the person’s possession; and

    (b)     relate to the corporation or to any of its examinable affairs.

    …

    596E         If the Court summons a person for examination, the person who applied for the summons must give written notice of the examination to:

    (a)     as many of the corporation’s creditors as reasonably practicable; and

    (b)     each eligible applicant in relation to the corporation, except:

    (i)    the person who applied for the examination; and

    (ii)if a person authorised by ASIC applied for the examination – ASIC; and

    (iii)a person who is such an eligible applicant only because the person is authorised by ASIC.

    …

    597(4)       [Public examination]   An examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private.

    …

    597(9)       [Production of books in person’s possession]         The Court may direct a person to produce, at an examination of that or any other person, books that are in the firstmentioned person’s possession and are relevant to matters to which the examination relates or will relate.

    …

    597(14)     [Admissibility of record]    Subject to subsection (12A), any written record of an examination so signed by a person, or any transcript of an examination of a person that is authenticated as provided by the rules, may be used in evidence in any legal proceedings against the person.

    …

    597(14A)    [Inspection of written record]     A written record made under subsection (13):

    (a)     is to be open for inspection, without fee, by:

    (i)    the person who applied for the examination; or

    (ii)     an officer of the corporation; or

    (iii)a creditor of the corporation; and …”

    (b)     is to be open for inspection by anyone else on paying the prescribed fee.

14. An “eligible applicant” is defined in s 9 of the Act to mean:

    “eligible applicant, in relation to a corporation, means:

    (a)ASIC; or

    (b)a liquidator or provisional liquidator of the corporation; or

    (c)an administrator of the corporation; or

    (d)an administrator of a deed of company arrangement executed by the corporation; or

    (e)a person authorised in writing by ASIC to make:

    (i) applications under the Division of Part 5.9 in which the expression occurs; or

    (ii)     such an application in relation to the corporation.”

15. It was not disputed that the requirements in paragraphs (a) and (b) of s 596B(1) were met. The dispute in this case centred on the exercise of the discretion to order the examinations and the production of documents.

    Leave to Inspect the Confidential Affidavits

16. One of the orders sought in the interlocutory applications is that under s 596C(2) the examinees be permitted to inspect the four confidential affidavits filed in support of the liquidators’ applications.  The confidential affidavits are affidavits of Mr Burfield sworn on 29 September 2002 (one for each of Mr Harvey (FDN 30) and Ms Flower (FDN 25)) and affidavits of Mr Smith sworn on 30 September 2002 (also one for each of Mr Harvey (FDN 32) and Ms Flower (FDN 27)).  The examinees accept, as I understand it, that before an order is made under s 596C(2) they need to show that they have an arguable case in respect of the matters they raise and that the affidavit material is relevant to that arguable case (Re Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 at 94; Re Southern Equities Corporation Ltd (in liq); Bond and Anor v England (1997) 25 ACSR 394 per Lander J (with whom Cox and Bleby JJ agreed) at 422).

17. Two of the arguments put by the examinees and Deloitte may be affected by the content of the confidential affidavits.  They are that the liquidators acted for an improper purpose and that they failed to make full and frank disclosure to the Master.  I will consider whether the examinees and Deloitte have an arguable case in relation to those arguments.  The way in which the argument that the Master failed to give adequate consideration to whether the orders should be made was put means that that argument is unaffected by the content of the confidential affidavits.  I will consider whether that argument is correct.  The argument involving the offer to co-operate is also unaffected by the content of the confidential affidavits and I will consider whether that argument is correct.

18. I have not read the confidential affidavits.  I do not think it is appropriate that I do so until I first determine whether there is an arguable case of improper purpose and a failure to make full and frank disclosure.

    Was There Full and Frank Disclosure?

19. The liquidators were under an obligation in relation to applications heard ex parte to disclose all facts material to the making of the orders including all facts that might lead the Court to refuse to make the orders.  In Re Southern Equities (above), Lander J (at 422) expressed the obligation in terms of an obligation to bring all facts and material to the Court’s attention which might bear upon the order to be made.  A liquidator and his advisers must disclose all material facts including facts which are known to the liquidator and which he believes (acting reasonably) might be brought forward by the examinees had they been aware of them and had they had the opportunity to appear on the application and oppose the making of the orders.  The facts must be disclosed in an affidavit. (See Re Southern Equities per Lander J at 426 – 430.)

20. The examinees and Deloitte submit that the liquidators failed to disclose a number of facts to the Master.  They failed to disclose the fact that Sandhurst Trustees had issued proceedings against Deloitte on 20 September 2002.  I accept that that fact was a fact which needed to be disclosed.  I reject the submission that the liquidators failed to disclose that fact.  There is no evidence to support the assertion and the onus is on the examinees to show at least an arguable case that the assertion is correct.  Even if I am wrong on this point, I am satisfied from evidence put forward by the liquidators that the fact was disclosed.  In his affidavit sworn on 12 February 2003 Mr Burfield states that the fact was disclosed.  I accept that statement.  The proceedings instituted by Sandhurst Trustees are not referred to in the transcript of the submissions before the Master  or in the non-confidential affidavits and it follows from the statement in Mr Burfield’s affidavit that there was disclosure of the proceedings in one of the confidential affidavits.

21. The second fact the examinees and Deloitte submit was not disclosed to the Master was the fact that JWS and Mr Hoffmann were acting for Sandhurst Trustees at the time the proceedings were instituted.  I accept that that fact was a fact which needed to be disclosed.  Again, there is no evidence to support the assertion that the fact was not disclosed and the onus is on the examinee and Deloitte to show at least an arguable case that the assertion is correct.  Again, even if I am wrong on this point, I find on the evidence put forward by the liquidators that the fact was sufficiently disclosed.  In his affidavit sworn on 12 February 2003 Mr Burfield states that the summons and statement of claim in the proceedings instituted by Sandhurst Trustees were in evidence before the Master.  Those documents show that JWS were the solicitors for Sandhurst Trustees and that the statement of claim had been settled by Mr Hoffmann.

22. The third fact the examinees and Deloitte submit was not disclosed to the Master was the fact that there was an agreement between the liquidators and Sandhurst Trustees.  The nature of the agreement alleged by the examinees and Deloitte is unclear.  In his affidavit sworn on 12 February 2003 Mr Burfield states:

    “7.Shortly prior to 20 September 2002 I held discussions with Mr Frank O’Brien of Sandhurst Trustees Limited (“Sandhurst”) in relation to the possibility of Mr Smith’s and my solicitors assisting Sandhurst to prepare and file a Protective Writ in respect of proceedings against Deloitte arising out of the circumstances of the issue by Normans of some $12 million in convertible unsecured notes pursuant to the terms of a Convertible Note Trust Deed between Normans and Sandhurst dated 1 July 1999. Following that discussion, Sandhurst were concerned as to the possible effluxion of statutory limitation periods under the Fair Trading Act 1987 (SA) and wished to protect against this eventuality.

    8.I and to my knowledge Mr Smith considered that in the circumstances it would be in the interests of Normans, its creditors and contributories for assistance to be provided to Sandhurst so as to prepare and file a Protective Writ in respect of its potential cause of action against Deloitte.  Sandhurst is trustee for the convertible unsecured note holders and represents some 33% of the claims of unsecured creditors of Normans.  If through litigation against Deloitte these claims could be satisfied this, in my, and to my knowledge, Mr Smith’s view, would be in the interests of the creditors and contributories of Normans generally.”

23. I agree with the submission of counsel for the liquidators that the above statements are not evidence of an agreement between the liquidators and Sandhurst Trustees or evidence from which an agreement should be inferred.  No doubt there was an agreement between Sandhurst Trustees and JWS, that is, a contract of retainer between client and solicitor.  That agreement was adequately disclosed when it was disclosed that JWS acted for Sandhurst Trustees.

24. The fourth fact the examinees and Deloitte submit was not disclosed to the Master requires careful consideration and analysis.  It was argued that the fact that the liquidators’ solicitors were acting both for the liquidators and Sandhurst Trustees created a conflict for the solicitors between the interests of the liquidators and the interests of Sandhurst Trustees.  If the fact had been disclosed to the Master he may have concluded that the liquidators were acting to further the interests of Sandhurst Trustees and that that was an improper purpose.  There are a number of answers to this submission.  First, it was, as I have already said, disclosed to the Master that JWS were acting for both the liquidators and Sandhurst Trustees and it is not to be assumed from that fact alone that the solicitors were thereby placed in a position of conflict of interest (see the discussion in paragraph 43 below).   In fact, the Master was entitled to assume that the solicitors would properly discharge their professional obligations.  Secondly, for reasons I will give in the context of the submissions about improper purpose, even if the liquidators’ purpose was to advance the interests of Sandhurst Trustees that would not be an improper purpose.

1. The examinees and Deloitte put a further submission which is related to the fact that JWS and Mr Hoffmann were acting for both the liquidators and Sandhurst Trustees.  They submit that in receiving the Wisher McDonagh documents from Deloitte pursuant to the undertaking given on 2 August 2002 and any further documents pursuant to the relevant orders, the liquidators and their advisers are under an implied undertaking not to use those documents or the information contained in them for a collateral purpose.  They refer to the well known statement of the relevant principle in Harman v Secretary of State for Home Department [1983] 1 AC 280. The examinees and Deloitte submit that to provide the documents or the information contained in the documents to a creditor of the company for use by the creditor in proceedings instituted by the creditor is a collateral or an ulterior purpose.

2. In my opinion a clear statement of the rule and the reasons for the rule is contained in the reasons for judgment of Lord Denning MR in Riddick v Thames Board Mills Ltd [1977] QB 881. The Master of the Rolls said (at 896):

   “The memorandum was obtained by compulsion.  Compulsion is an invasion of a private right to keep one’s documents to oneself.  The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires.  The courts should, therefore, not allow the other party - or anyone else - to use the documents for any ulterior or alien purpose.  Otherwise the courts themselves would be doing injustice.  Very often a party may disclose documents, such as inter-departmental memoranda, containing criticisms of other people or suggestions of negligence or misconduct.  If these were permitted to found actions of libel, you would find that an order for discovery would be counter-productive.  The inter-departmental memoranda would be lost or destroyed or said never to have existed.  In order to encourage openness and fairness, the public interest requires that documents disclosed on discovery are not to be made use of except for the purposes of the action in which they are disclosed.  They are not to be made a ground for comments in the newspapers, nor for bringing a libel action, or for any other alien purpose.  The principle was stated in a work of the highest authority 93 years ago by Bray J., Bray on Discovery, 1^st ed. (1885), p. 238: ‘A party who has obtained access to his adversary’s documents under an order for production has no right to make their contents public or communicate them to any stranger to the suit: … nor to use them or copies of them for any collateral object … If necessary an undertaking to that effect will be made a condition of granting an order: …’  Since that time such an undertaking has always been implied, as Jenkins J. said Alterskye v. Scott [1948] 1 All E.R. 469, 471. A party who seeks discovery of documents gets it on condition that he will make use of them only for the purpose of that action, and no other purpose.”

3. If a liquidator obtains documents in the course of an examination or as a result of the production of documents under Part 5.9 Division 1, it is not a breach of the implied undertaking for the liquidator to use the documents or the information contained in the documents for the purpose of proceedings instituted by the liquidator to recover assets on behalf of the company. In Re Southern Equities (above) Lander J said (at 437):

   “I think, with respect that is not the proposition for which Duke Group Ltd (in liq) v Pilmer, supra, stands.  I think Duke Group Ltd (in liq) v Pilmer, supra, is authority for the following propositions.  First, that an undertaking is imposed upon a liquidator with respect to documents produced to the court in response to an examination summons.  Second, the undertaking is not to use the documents for a collateral or ulterior purpose.  Third, the use of the documents in the liquidation is not a collateral or ulterior purpose.”

4. In Re Southern Equities the Court did not need to address the issue of whether the provision of documents or the information contained in documents by the liquidator to a creditor of the company for use in connection with proceedings instituted by the creditor is a collateral or ulterior purpose. I think that it is. Proceedings by the liquidator under Part 5.9 Division 1 or for the recovery of assets for the benefit of the company are quite distinct from proceedings by a creditor against a third party even though recovery by the creditor might indirectly benefit other creditors or contributories of the company. In my opinion, there is no reason to think that the implied undertaking does not arise in the case of separate actions, one by the liquidator against Deloitte and the other by a creditor (Sandhurst Trustees) against Deloitte. I do not think the rights given to creditors and others as a result of the amendments introduced by the Corporate Law Reform Act 1992 (Cth) (No 210 of 1992) dictate a different conclusion. Counsel for the liquidators referred to the reasons for judgment of Selway J in D’Arrigo v Carter, In the Matter of Gartner Wines Pty Limited (Rec. and Man. App) (Administrators App.) [2003] FCA 5. I note that during the course of his reasons, Selway J said (para 20):

   “In particular, in the absence of any Court order to the contrary, the disclosure by the receiver to the creditor of the information or documents obtained in an examination is not a breach of any duty of confidentiality.  Such disclosure is clearly envisaged by subs. 597 (4) and (14A) of the Act.  Such disclosure involves the ‘use of the documents in the liquidation’ as envisaged by the statutory scheme.”

5. Subsections 597(4) and (14A) mean that a creditor may attend an examination and he may obtain a record of the examination. He may obtain information contained in documents produced to the Court insofar as that information is revealed in the transcript of an examination. He may by utilising the provisions of s 131 of the Supreme Court Act 1935 inspect or obtain copies of documentary material admitted into evidence in the examinations. However, putting these matters to one side, there is nothing in the relevant sections which gives a creditor the right to inspect and use documents produced to the Court on the application of a liquidator, or gives a liquidator the right to give documents to a creditor for use by that creditor. I think a liquidator is under an implied undertaking in the case of documents obtained under Part 5.9 Division 1 and that facilitating the use of those documents or the information contained in the documents by a creditor in proceedings instituted by that creditor is a collateral or ulterior purpose. I put the proposition in these terms because I recognise that there may be powerful arguments to the effect that there should be nothing to prevent a liquidator from communicating to creditors matters relevant to the liquidator’s administration including legal proceedings conducted by the liquidator and that this might involve communicating to creditors information in documents discovered by the other party to the proceedings.

6. Counsel for the liquidators submits that the implied undertaking did not arise in relation to the Wisher McDonagh documents because they were provided pursuant to an agreement between the parties and therefore on a voluntary basis rather than by reason of an order of the Court or a rule of Court.  I reject that submission.  At the time the agreement was struck there were orders of the Court requiring the provision of the Wisher McDonagh documents.  I think it is appropriate to characterise the agreement between the parties as an agreement that upon part of the order being complied with, the balance of the order would be stayed.  Alternatively, I would hold that in the circumstances of this case the threat of compulsion is sufficient to give rise to the implied undertaking.

7. The examinees and Deloitte submit that the liquidators and its advisers were in breach of the implied undertaking in relation to the Wisher McDonagh documents once JWS and Mr Hoffmann commenced acting for Sandhurst Trustees.  They submit that JWS and Mr Hoffmann could not put out of their minds the information contained in the documents and must have used the information in connection with the proceedings instituted by Sandhurst Trustees.  Furthermore, there would inevitably be breaches of the implied undertaking in the future in relation to documents obtained by the liquidators and relevant to the proceedings instituted by Sandhurst Trustees for so long as JWS and Mr Hoffmann continued to act for Sandhurst Trustees.  In the alternative to this submission, the examinees and Deloitte submit there was such a high risk that a breach had occurred and that breaches would occur in the future that disclosure of the dilemma in which the liquidators and their advisers had placed themselves should have been made to the Master.

8. Mr Hoffmann gave evidence before me.  I accept his evidence.  He received the Wisher McDonagh documents on 2 August 2002.  He inspected the documents.  Other than a handful of documents, he had seen copies of the Wisher McDonagh documents in the documents the liquidators had collected and assembled as part of the liquidation.  He said, and I accept, that he did not consciously use any of the Wisher McDonagh documents when preparing the proceedings instituted by Sandhurst Trustees and he made every effort not to use the documents or the information contained in the documents.  In an affidavit tendered in evidence, a solicitor employed by JWS (Mr Thomas Grace) makes a similar statement on behalf of JWS.  I accept that evidence.

9. I am satisfied that neither Mr Hoffmann nor JWS knowingly breached the implied undertaking.  Counsel for the examinees and Deloitte could not point to any document or information subject to the implied undertaking used by the liquidators’ advisers in connection with the proceedings instituted by Sandhurst Trustees.  Mr Hoffmann and JWS have said that they did not make use of the documents or the information and I have accepted that evidence.

10. It seems then that the critical question is whether the mere acceptance of instructions by JWS and Mr Hoffmann from Sandhurst Trustees constituted a breach of the implied undertaking.  I do not think that it did.  The undertaking is that the documents or the information contained in the documents must not be used.  If an injunction prohibiting a breach of the undertaking is considered appropriate it will be in terms prohibiting the use of documents and information, not in terms prohibiting, for example, the solicitors from acting in the second action (Re Schuppan (a bankrupt) [1996] 2 All ER 664 per Robert Walker J at 670; Crest Homes Plc v Marks [1987] 1 AC 829).

11. It follows from this conclusion that there was no failure to disclose a relevant matter in relation to the implied undertaking because there was no breach of the implied undertaking at the time of the hearing before the Master and there was no likelihood of a breach in the future bearing in mind that it may reasonably be assumed that the liquidators and their advisers would comply with the undertaking in the future.  I reject the submission that the liquidators failed to make full and frank disclosure to the Master. 

12. I might add that if I had accepted the submission of the examinees and Deloitte that there was a breach (or high likelihood of a breach) of the implied undertaking, I would have set aside the relevant orders not so much on the ground that there had been a failure to make full and frank disclosure, but rather, because I think it would be an error to make an order against the examinees and Deloitte for the production of documents if to do so would put the liquidators and their advisers in breach of the implied undertaking for so long as the liquidators’ advisers acted for Sandhurst Trustees.  I would also have heard from the parties as to whether I should set aside the relevant orders or only that part of the orders which requires the production of documents.

    Was there an Improper Purpose?

13. Counsel for the examinees and Deloitte submits that the liquidators had an improper purpose, namely, to obtain information and/or material for use in the proceedings instituted by Sandhurst Trustees.

14. The question of what is an improper purpose has been considered in a large number of authorities in this country (see, for example, Re Excel Finance (above); at 89 – 91; Re Hugh J Roberts Pty Ltd (in liq) [1970] 2 NSWR 582 per Street J at 584 – 585; Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 per Gleeson CJ at 519; New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 per Hayne J at 614 and 618; Re Southern Equities (above) per Lander J at 432 – 433).

15. The question whether a person has an improper purpose is almost always a question of inference. The authorities establish that an improper purpose includes a purpose of using the examination as a dress rehearsal for cross-examination, or for the purpose of destroying the credibility of the examinees or witnesses who might be called for the examinee in substantive proceedings, or for the predominant purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, or simply to cause undue inconvenience or embarrassment to the examinee or to inflict costs.  In Re Southern Equities Lander J said (at 432);

    “It is clear enough from the authorities that the mere fact that proceedings are pending against the proposed examinee does not make the application for an examination an abuse of process.  Nor will it be so even if the proposed examination touches upon or explores the subject matter of those existing proceedings.  Still it will not be an abuse if the examination will give rise to a forensic advantage, for example by way of securing admissions or obtaining material or evidence not otherwise available to the liquidator.”

16. Mr Burfield swore an affidavit on 12 February 2003 for the purpose of the interlocutory applications before me.  In that affidavit he states:

    “12.   As set out in my affidavits sworn 29 September 2002 I believe that:

    12.1     Ms Flower and Mr Harvey will be able to give information as to the examinable affairs of Normans; and

    12.2     Ms Flower, Mr Harvey and Deloitte have in their possession books and records relevant to the examinable affairs of Normans.

    13.I and to my knowledge Mr Smith sought orders for the examination of and production of books and records by Ms Flower and Mr Harvey and for the production of books and records by Deloitte for the following purposes:

    13.1  To further Smith’s and my investigation of the financial position and collapse of Normans in the period 30 June 1995 through 30 June 2001.

    13.2  To provide Smith and myself with information in relation to whether or not there are causes of action available to Normans which Normans may be able to pursue against its former auditors and directors; and

    13.3  To provide information which will assist Smith and myself in the conduct of examinations of the former directors and auditors of Normans.”

17. Mr Smith also swore an affidavit for the purposes of the interlocutory applications before me.  In that affidavit sworn on 13 February 2003 Mr Smith states:

    “4.I swear this affidavit in response to the matters deposed to by Mr Dart in the Dart affidavits.  I refer to the affidavit of Timothy Paul Burfield sworn 12 February 2002 (sic).  I have read the contents of Mr Burfield’s affidavit and confirm that I agree with the matters set out in paragraphs 12 to 15 as to my and Mr Burfield’s purpose in relation to seeking the examinations of Ms Flower and Mr Harvey and production of documents by Ms Flower, Mr Harvey and Deloitte.”

18. Counsel for the examinees and Deloitte submit that I should not rely on these statements of purpose unless I am prepared to make an order giving the examinees and Deloitte leave to inspect the confidential affidavits.  In other words, the examinees and Deloitte submit that if the liquidators are permitted to rely on a statement of their purposes made after the hearing before the Master then on principles analogous to an implied waiver of privilege, I should make an order allowing them to inspect the confidential affidavits (see, for example, Ampolex Ltd v Perpetual Trustee Co (1995) 37 NSWLR 405). I reject that submission. In a broad sense there might be some common considerations but there are also significant differences between the reasons for the doctrine of the implied waiver of privilege and the matters relevant to the Court’s discretion to make an order under s 596C(2). For example, one of the reasons for confidentiality is to prevent the frustration of the examination process. The matters relevant to whether the Court should order disclosure of confidential affidavits were discussed by the Full Court of the Federal Court in Re Excel Finance (above).  The Court said (at 93 – 94):

    “In our view the Court has a discretion to order the disclosure, to a prospective examinee, of material lodged in support of the application for an examination order and should do so where the justice of the case so requires: cf Re British and Commonwealth Holdings Plc (Nos 1 and 2) [1992] Ch 342 at 355 per Nourse LJ and at 367 per Ralph Gibson LJ.

    It does not follow that the Court would permit every examinee or potential examinee to have access to such material.  There are sound reasons why inspection should not be freely granted for so to do could afford to an examinee information which could permit the examination process to be frustrated: cf per Sir George Jessel MR in Re Gold Co (supra).  There could also be confidential information which should properly be withheld.  However, we agree with Nourse LJ in Re British and Commonwealth Holdings Plc (at 355):

    ‘ … inspection of the statement should prima facie be allowed where the court is of the opinion that it will or may be unable fairly and properly to dispose of the application if part of the evidence is withheld from the person against whom the order is sought.  It will then be for the officeholder to satisfy the court that confidentiality in whole or in part is nevertheless appropriate.’”

19. To support his argument that the liquidators’ purpose in seeking the relevant orders was to obtain information and/or material for use in the proceedings instituted by Sandhurst Trustees, counsel for the examinees and Deloitte points to the fact that the solicitors and counsel, acting for Sandhurst Trustees at the time the action was instituted were the liquidators’ solicitors and counsel, and submits that the inference should be drawn that in seeking the relevant orders the liquidators were acting only in the interests of Sandhurst Trustees.  The fact that the same solicitors act for a liquidator and a creditor does not necessarily give rise to a conflict of interest.  Each case depends on its own circumstances (Re Laurie Cottier Productions Pty Ltd (in liq.) (1992) 9 ACSR 513 per Waddell CJ in Eq. at 518). In this case, leaving aside the question I have already dealt with (ie., the alleged breach of the implied undertaking), there is no apparent conflict of interest.

20. I reject the submission that the liquidators’ purpose in seeking the relevant orders was to obtain information and/or material for use in the action by Sandhurst Trustees.  In the earlier action commenced on 13 March 2002, well before the institution of the proceedings by Sandhurst Trustees on 20 September 2002, Mr Burfield sought examination orders against the examinees and other persons including directors of the company.  Mr Burfield set out his purposes in seeking examination orders against the examinees in the earlier action in his affidavit of 15 May 2002.  To my mind, it would have been surprising if, having decided not to appeal from the orders of Perry J, the liquidators did not institute a fresh action.  I have no reason to doubt the statement of purposes in the affidavit of Mr Burfield (12 February 2003) and the affidavit of Mr Smith (13 February 2003) respectively.  I do not think it is arguable that in seeking the relevant orders the liquidators were acting for an improper purpose.

1. Even if I am wrong and the proper inference on the facts is that the liquidators sought the relevant orders for the purpose of advancing the interests of Sandhurst Trustees, then providing the liquidators’ purposes did not include one or more of the purposes identified in paragraph 39 above, I would hold that such a purpose is not an improper purpose.   I accept Mr Burfield’s statement that if through litigation against Deloitte the claims of Sandhurst Trustees could be satisfied then that would be in the interests of the creditors and contributories of the company generally.

2. In Re Laurie Cottier Productions Pty Ltd (in liq) (above) Waddell CJ in Eq. considered a challenge to a liquidators’ examination which was being funded by a creditor of the company (Macquarie Print Pty Ltd).   His Honour said (at 518):

   “In my opinion, even if the prime purpose of the examination were to assist Macquarie Print recover its debt, this would not be an ulterior purpose which would justify the Court in setting aside the examination order.  However, on the facts, as appears above, I do not regard this as the prime purpose.”

   In Re BPTC Ltd (1992) 10 ACLC 271, McLelland J said (at 273):

   “I was referred to the decision of the English Court of Appeal in Re North Brazilian Sugar Factories (1887) 37 Ch D 83 in which consideration was given (obiter) to an equivalent provision, s 156 of the companies Act 1862 (UK). There is a statement in that case to the effect that the obtaining of evidence in support of actions by individual shareholders against the directors of a company in the course of being wound up necessarily lies outside the proper ambit of the section. In my opinion such a limited view cannot be regarded as acceptable at the present day. Facilitation of the accountability to individual creditors or contributories, as well as to the company itself, of those who participated in the conduct of its affairs prior to the winding up should nowadays be regarded as sufficiently related to the winding up to fall within the scope of the section.”

3. In Flanders v Beatty and Another (1995) 16 ACSR 324 the administrator under a deed of company arrangement applied for an order for examination under s 596B. The order was sought against auditors of the company. It was argued that the purpose of the administrator in seeking the order was an abuse of process as the examination would not be for the benefit of the company as a whole but rather for a limited group of people, that is, the creditors. Ormiston J (with whom Tadgell and Harper JJ agreed) rejected that argument. In the course of his reasons Ormiston J said (at 335):

   “Nevertheless it is unnecessary to doubt the opinion expressed in Worthley’s case that under the unamended provisions of s 597 it was necessary to show that the proposed examination was for the benefit of the corporation, its contributories or its creditors.  What is clear, however, is that the scope of the examination provisions was greatly expanded by the 1992 amendments.  Though I would doubt that the former section was intended to be constrained by any need to ensure that an examination was for the company’s benefit in the sense of keeping the company alive by paying out its creditors, it was part of a scheme derived from liquidators’ examinations.  Liquidators, it is accepted, owe certain duties to the company, whatever be the outcome of the winding up: cf Commissioner for Corporate Affairs v PW Harvey [1980] VR 669 at 691-2 and 695 and the cases there cited.

   Now the powers given under s 596A to 597B are clearly so wide and so easily exercised by ‘eligible applicants’ (cf s 596A) that the purposes to be served by examinations ought not be limited by reference to the benefit of the company or its creditors or contributories.  The objects to be served by the issue of an examination summons and the making of orders for examination should be discerned only by reference to the statutory provisions which invest those powers.  If those powers are being used for oppressive purposes or to serve ends entirely outside the scope of the sections, such as to gather evidence for libel proceedings, then the court will intervene to prevent the examination.”

4. In Douglas-Brown v Furzer (1994) 11 WAR 400, a liquidator obtained an order for examination against a person who was being sued by a creditor of the company. The creditor had agreed to indemnify the liquidator for his costs. The particular issue before the Court was quite a different one from the issues before me. In the course of his reasons Malcolm CJ (with whom Ipp and Anderson JJ agreed) made the following observations (at 408):

   “In my opinion, when one reads s 597(14) and (14A) in the context of the provisions as they now appear, the patent object is to enable the liquidator or any creditor of the corporation to have access to the written record or authenticated transcript of an examination and use it in evidence in any proceedings against the person being examined. Taking all the provisions together, the intention of the legislation appears to be that such examination should now be carried out in such a way which will facilitate not only investigations but also the prosecution of civil or criminal proceedings, whether contemplated or already commenced, including civil proceedings by individual creditors. The intention is that the persons who are eligible applicants and any other relevant persons are given a forensic advantage which the court can prevent being abused by its control over the conduct of the examination.”

5. I think the authorities support at least this proposition.  Subject always to the liquidators’ purposes not including one or more of the purposes identified in paragraph 39 above, a purpose (of the liquidator) of advancing the interests of a creditor of the company who has instituted proceedings against the proposed examinees is not an improper purpose if there is a basis for concluding that advancing the interests of the creditor will also advance the interests of the company, its other creditors or contributories.  Perhaps the authorities support a broader proposition, but it is unnecessary for me to decide that in this case.  Counsel for the examinees and Deloitte submits that a liquidator cannot act for the purpose of advancing the interests of a creditor and he cites Re Excel Finance in support of that proposition.  However, I respectfully agree with the analysis of that case by Ormiston J in Flanders v Beatty (at 333 – 334).

6. It follows from the above that even if I am wrong in my finding as to the liquidators’ purposes, at best for the examinees and Deloitte the liquidators’ purposes go no further than the purpose stated in the above proposition and that is not an improper purpose.

   Did the Master Adequately Consider the Applications?

7. The Master did not deliver reasons for making the orders he did on 1 October 2002.  There is a transcript of the hearing which took place on that day and that was put before me.  The examinees and Deloitte submit that in view of the volume of material put before the Master and the time he spent considering the applications, the Master could not have given adequate consideration to the question whether he should make the orders sought by the liquidators.  That is a serious allegation. 

8. A considerable volume of affidavit material was put forward in support of the liquidators’ applications.  As I understand it, the affidavit material before the Master consisted of the confidential affidavits previously described, and two non-confidential affidavits from each of Mr Burfield (FDN 26 and 31) and Mr Smith (FDN 28 and 33).  Mr Burfield’s non-confidential affidavit in the matter involving Mr Harvey includes voluminous exhibits (FDN 31).  However, those exhibits relate almost entirely to a statement of the history of the earlier action.  The Master was the judicial officer who managed the earlier action from the time it was commenced on 13 March 2002 and he would have been familiar with the course of events.

9. As to the confidential affidavits, I received on the hearing before me an affidavit of Mr Thomas Grace sworn on 14 February 2003.  That affidavit satisfies me on the balance of probabilities that a copy of the main confidential affidavits and exhibits namely, Mr Burfield’s confidential affidavits and the exhibits thereto were delivered to the Master’s chambers on 30 September 2002 and that the Master read those affidavits and the exhibits prior to the hearing on 1 October 2002.

10. Counsel for the examinees and Deloitte took me to the transcript of the hearing before the Master.  It is important to note the following points about the hearing as recorded in the transcript.  First, the Master referred to a daunting bundle of papers that had “just arrived”.  I am satisfied that as far as the applications against the examinees and Deloitte are concerned that is a reference, at least primarily, to the non confidential affidavits of Mr Burfield, and that the Master would have been familiar with most of that material.  Secondly, the Master at an early stage informed Mr Hoffmann, counsel for the liquidators that he should proceed on the basis that he had read the affidavits in each case unless the Master advised otherwise.  Thirdly, the Master was specifically referred to an offer of co-operation said to have been made by the examinees by letter from their solicitors dated 23 September 2002.  Fourthly, it is not possible to determine to what extent the Master was reading the affidavits and exhibits as counsel was making submissions.  It should not be assumed that he was not examining the documents carefully.  Finally, it is probably right to say that the application in relation to the examinees took a short time, perhaps something in the order of approximately 15 minutes.

11. I am not satisfied that the examinees and Deloitte have made good the proposition that the Master failed to adequately consider whether the relevant orders should be made.  The Master read Mr Burfield’s confidential affidavits before the hearing.  The large volume of material which “arrived late” related almost entirely to the history of the earlier proceedings.  The Master would have been well and truly familiar with that history.  The Master had made similar orders in the earlier action and he had considered in detail interlocutory applications to set aside those orders.  The Master did not fail to consider adequately whether the orders should be made.

    Relevance of “Offer of Co-operation”

12. By letter dated 23 September 2002 the solicitors for the examinees and Deloitte made the following offer:

    “1.     Cooperation

    1.1    As you are aware, Mr Harvey and Ms Flower have, at all times, been willing to cooperate with the liquidators in responding to any questions they may have arising out of the audit of Normans Wines Limited (Receivers and Managers Appointed) (in Liquidation) (‘Normans’).

    1.2    To the extent that the liquidators seek to gather information about the affairs of Normans, we have been instructed that, in the first instance, the liquidator should direct any questions to us.

    1.3    More importantly, the liquidators should be aware that in light of the willingness of Mr Harvey and Ms Flower to cooperate with them in relation to the examinable affairs of Normans, there is no need now to seek any examination or production orders.

    1.4    To the extent that the liquidators are advised that they should proceed to apply for orders for the examination of Mr Harvey and Ms Flower then a copy of this letter should be made available to the Court.  Further, we would wish to be heard on that application and Mr Harvey and Ms Flower fully reserve their rights.

    2.     Scope of Request

    2.1    To the extent that the liquidators seek documents from Deloitte relating to the audit of Normans then we would be grateful if you would inform us of the particular transactions and the dates of those transactions together with sufficient identification of the issues to which the liquidators enquiries relate.

    2.2    We would then expect that we would be in a position to make copies of those documents available to you subject to suitable arrangements about costs.”

13. Counsel for the examinees and Deloitte submits that an order for examination and the production of documents should not be made if there is an alternative means by which the liquidator may obtain the information he seeks.

14. In some cases the fact that the relevant information and documents might be obtained by alternative means will be relevant to the question of whether an inference of improper purpose should be drawn. That is not the case here. The fact might also be relevant to the exercise of the discretion as to whether orders should be made. The offer of co-operation was disclosed to the Master. The transcript reveals that counsel for the liquidators referred to it on two occasions. There is nothing to suggest that the Master did not take it into account. The offer is very general in its terms in the sense that it is a statement that the examinees are willing to co-operate and it invites the liquidators to direct questions in the first instance to the solicitors for the examinees. The offer falls short of conferring the advantages the liquidators may legitimately seek by pressing for orders under Part 5.9 Division 1.

    Conclusions

15. I dismiss each of the interlocutory applications being the application by Mr Harvey dated 8 October 2002 (FDN 61), the application by Ms Flower dated 8 October 2002 (FDN 64) and the application by Deloitte Touche Tohmatsu dated 8 October 2002 (FDN 63).  I will hear the parties as to costs.