HP Mercantile Pty Limited v Crouch - [2009] FCA 1492

FEDERAL COURT OF AUSTRALIA
HP Mercantile Pty Limited v Crouch; in the matter of Tumut River Orchard Management Limited (in liquidation) ACN 003 501 611 [2009] FCA 1492
CORPORATIONS – application to discharge examination summons – whether abuse of process – whether requirements for the production of documents should be set aside
Corporations Act 2001 (Cth) ss 9, 53, 596A, 596B, 596D(2), 596F(1), 597(4), 597B and 597(5B)
Federal Court (Corporations) Rules 2000 r 11.3 and 11.3(7)
Hamilton v Oades (1989) 166 CLR 486 cited
Re Hugh J Roberts Pty Ltd (in liq) and the Companies Act (1970) 91 WN (NSW) 537 cited
New Zealand Steel (Aust) Pty Ltd v Burton (1994) 13 ACSR 610 referred to
Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 referred to
Meteyard v Love (2005) 65 NSWLR 36 referred to
O’Brien v Wily (2009) 74 ACSR 145 referred to
Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 260 ALR 34 cited
IN THE MATTER OF TUMUT RIVER ORCHARD MANAGEMENT LIMITED (IN LIQUIDATION) ACN 003 501 611; HP MERCANTILE PTY LIMITED ACN 097 362 877, GEORGE ROY WILLIAM MCDONALD, JOHN CAMPBELL MYERS and ROSS CHAPMAN v NICHOLAS DAVID JAMES CROUCH IN HIS CAPACITY AS LIQUIDATOR OF TUMUT RIVER ORCHARD MANAGEMENT LTD (IN LIQUIDATION) ACN 003 501 611
NSD 1836 of 2008
GRAHAM J
11 DECEMBER 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1836 of 2008

IN THE MATTER OF TUMUT RIVER ORCHARD MANAGEMENT LIMITED (IN LIQUIDATION) ACN 003 501 611

BETWEEN:

NICHOLAS DAVID JAMES CROUCH IN HIS CAPACITY AS LIQUIDATOR OF TUMUT RIVER ORCHARD MANAGEMENT LTD (IN LIQUIDATION) ACN 003 501 611
Plaintiff

HP MERCANTILE PTY LIMITED ACN 097 362 877
First Applicant

GEORGE ROY WILLIAM MCDONALD
Second Applicant

JOHN CAMPBELL MYERS
Third Applicant

ROSS CHAPMAN
Fourth Applicant

AND:
NICHOLAS DAVID JAMES CROUCH IN HIS CAPACITY AS LIQUIDATOR OF TUMUT RIVER ORCHARD MANAGEMENT LTD (IN LIQUIDATION) ACN 003 501 611
Respondent

JUDGE:

GRAHAM J

DATE OF ORDER:

11 DECEMBER 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The summons for examination directed to the second applicant and filed 30 October 2009 be further varied by deleting from paragraph (b) all words appearing after ‘to produce at the examination the following books:’ and before ‘Date: 30 Oct 2009’ and inserting in lieu thereof the following:
‘The original or, only if the original is unavailable, a copy of each of the documents mentioned below:
1.All documents recording any of the following purported assignments of the book debts of Tumut River Orchard Management Limited (in liquidation) A.C.N. 003 501 611 (“TROM”) for each of the following projects (collectively “the Loan Books”), including without limitation any agreement to assign or minute recording or relating to such assignment:
(a)Assignment of the Coonabarabran & Queensland project loans from:
(i)Tumut River Orchard Management Limited A.C.N. 003 501 611 (TROM) to Core Finance Pty Limited A.C.N. 073 869 897 (Core)…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2009] FCA 1492
Decision Date: 11 DECEMBER 2009

CaseChat Overview and Summary

In the case of HP Mercantile Pty Limited v Crouch, the matter was brought before the court to address concerns regarding the conduct and scope of examinations ordered by the liquidator, Crouch, in relation to certain debtors of Tumut River Orchard Management Limited (in liquidation). The respondents argued that the summons directed to them should be discharged on several grounds, including the alleged conflict of interest of Crouch, the manner of funding the examinations, the scope of the summons, and the lack of public interest in the examinations. The court was tasked with determining whether the summons were properly issued and whether they exceeded the scope of the liquidator's powers.

The court examined the nature of the examinations and the role of the liquidator in conducting such examinations. It noted that the liquidator's primary role is to investigate the facts pertinent to the examinable affairs of the company and to assess the reliability of those who provide sworn evidence. The court held that the examinations did not form part of any contested inter-partes proceedings and that the liquidator's role in this context was to investigate and determine the validity of certain assignments of debts. The court further considered the arguments regarding the scope of the summons and whether they sought to obtain documents beyond the examinable affairs of Tumut.

In reaching its decision, the court varied the summons to ensure they were limited to documents relevant to the examinable affairs of Tumut and the assignments of debts in question. The court also addressed the issue of costs, ordering that the respondent pay a portion of the applicants' costs but allowing for the possibility of a different order on costs to be made after further notice. The court dismissed the Further Amended Interlocutory Process as between the applicants and the respondent but granted liberty to all parties to apply for a different order as to costs.

The court's final orders included specific variations to the summons to limit their scope, a partial costs order subject to further notice, and the dismissal of the Further Amended Interlocutory Process. This decision highlights the importance of ensuring that liquidators' examinations are properly scoped and conducted within the bounds of their powers, while also considering the interests of all relevant parties.

Orders

Orders of the court

1. The summons for examination directed to the second applicant and filed 30 October 2009 be further varied by deleting from paragraph (b) all words appearing after ‘to produce at the examination the following books:’ and before ‘Date: 30 Oct 2009’ and inserting in lieu thereof the following:

‘The original or, only if the original is unavailable, a copy of each of the documents mentioned below:

1. All documents recording any of the following purported assignments of the book debts of Tumut River Orchard Management Limited (in liquidation) A.C.N. 003 501 611 (“TROM”) for each of the following projects (collectively “the Loan Books”), including without limitation any agreement to assign or minute recording or relating to such assignment:

(a) Assignment of the Coonabarabran & Queensland project loans from:

(i) Tumut River Orchard Management Limited A.C.N. 003 501 611 (TROM) to Core Finance Pty Limited A.C.N. 073 869 897 (Core) in or about June 1996;

(b) Assignment of Treetop & Plum project loans:

(i) TROM to Symsung Pty Limited A.C.N. 079 014 243 (Symsung) in or about June 1997;

(i) TROM to Treetop Investments Pty Limited ACN 056 370 499 in about May 1998;

2. All documents listing the names and addresses of all investors and/or debtors named in the Loan Books.

3. All documents recording any payment made by any investor or debtor named in the Loan Books to HP Mercantile Pty Limited in respect thereof.

4. All notices of assignment sent to any investor or debtor in respect of the aforesaid assignments or any of them.

5. Any valuation of the Loan Books or any of them for the period 1 March 2000 to 1 September 2001.’

2. The summons for examination directed to the third applicant and filed 30 October 2009 be further varied by deleting from paragraph (b) all words appearing after ‘to produce at the examination the following books:’ and before ‘Date: 30 Oct 2009’ and inserting in lieu thereof the following:

‘The original or, only if the original is unavailable, a copy of each of the documents mentioned below:

(a) Assignment of the Coonabarabran & Queensland project loans from:

(i) Tumut River Orchard Management Limited A.C.N. 003 501 611 (TROM) to Core Finance Pty Limited A.C.N. 073 869 897 (Core) in or about June 1996;

(b) Assignment of Treetop & Plum project loans:

(i) TROM to Symsung Pty Limited A.C.N. 079 014 243 (Symsung) in or about June 1997;

(i) TROM to Treetop Investments Pty Limited ACN 056 370 499 in about May 1998;

2. All documents listing the names and addresses of all investors and/or debtors named in the Loan Books.

3. All documents recording any payment made by any investor or debtor named in the Loan Books to HP Mercantile Pty Limited in respect thereof.

4. All notices of assignment sent to any investor or debtor in respect of the aforesaid assignments or any of them.

5. Any valuation of the Loan Books or any of them for the period 1 March 2000 to 1 September 2001.’

3. The summons for examination directed to the fourth applicant and filed 30 October 2009 be further varied by deleting from paragraph (b) all words appearing after ‘to produce at the examination the following books:’ and before ‘Date: 30 Oct 2009’ and inserting in lieu thereof the following:

‘The original or, only if the original is unavailable, a copy of each of the documents mentioned below:

(a) Assignment of the Coonabarabran & Queensland project loans from:

(i) Tumut River Orchard Management Limited A.C.N. 003 501 611 (TROM) to Core Finance Pty Limited A.C.N. 073 869 897 (Core) in or about June 1996;

(b) Assignment of Treetop & Plum project loans:

(i) TROM to Symsung Pty Limited A.C.N. 079 014 243 (Symsung) in or about June 1997;

(i) TROM to Treetop Investments Pty Limited ACN 056 370 499 in about May 1998;

2. All documents listing the names and addresses of all investors and/or debtors named in the Loan Books.

3. All documents recording any payment made by any investor or debtor named in the Loan Books to HP Mercantile Pty Limited in respect thereof.

4. All notices of assignment sent to any investor or debtor in respect of the aforesaid assignments or any of them.

5. Any valuation of the Loan Books or any of them for the period 1 July 2001 to date.

6. Any document for the period 1 August 2001 to date recording the total amount due from investors and/or debtors under or in respect of the Loan Books and each of them.

7. Any document in the period in January 2008 to date containing a summary of expenses paid by HP Mercantile Pty Limited in respect of collection of the Loan Books.’

4. The respondent pay one quarter of the second, third and fourth applicants’ costs of the Further Amended Interlocutory Process filed 30 November 2009 provided however that this order may not be entered until after 18 December 2009.

5. The Further Amended Interlocutory Process be otherwise dismissed as between the second, third and fourth applicants and the respondent.

AND THE COURT GRANTS:

6. Liberty to all parties to apply on two days’ notice returnable on or before 18 December 2009, for a different order as to costs.

Note:

Background

Background to the litigation

In Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 260 ALR 34 at [27]-[29] French CJ, Gummow, Hayne and Crennan JJ said in respect of the prevention of abuses of process:‘[27] An early statement of the power of any court to prevent abuse of its processes is found in an 1841 case, Cocker v Tempest:The power of each court over its own process is unlimited; it is a power incident to all courts, inferior as well as superior; were it not so, the court would be obliged to sit still and see its own process abused for the purpose of injustice.That statement foreshadowed the contemporary approach in the United Kingdom and Australia which takes no narrow view of what can constitute “abuse of process”. Nevertheless, certain categories of conduct attracting the intervention of the courts emerged in the 19th and 20th centuries and included:(a)proceedings which involve a deception on the court, or are fictitious or constitute a mere sham;(b)proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way;(c)proceedings which are manifestly groundless or without foundation or which serve no useful purpose;(d)multiple or successive proceedings which cause or are likely to cause improper vexation or oppression.[28] The term “abuse of process”, as used in Australia today, is not limited by the categories mentioned above or those which constitute the tort. It has been said repeatedly in the judgments of this court that the categories of abuse of process are not closed. In Walton the majority adopted the observation in Hunter that courts have an inherent power to prevent misuse of their procedures in a way which, although not inconsistent with the literal application of procedural rules of court, would nevertheless be “manifestly unfair to a party to litigation … or would otherwise bring the administration of justice into disrepute among right-thinking people”. This does not mean that abuse of process is a term at large or without meaning. Nor does it mean that any conduct of a party or non-party in relation to judicial proceedings is an abuse of process if it can be characterised as in some sense unfair to a party. It is clear, however, that abuse of process extends to proceedings that are “seriously and unfairly burdensome, prejudicial or damaging” or “productive of serious and unjustified trouble and harassment”.[29] In Campbells, Gummow, Hayne and Crennan JJ (with whom Gleeson CJ agreed in this respect) declined to formulate an overarching rule of public policy that would, in effect, bar the prosecution of an action involving an agreement to provide money to a party to institute or prosecute the litigation in return for a share of the proceeds of the litigation. Nor would they accept that there should be a rule which would bar the prosecution of some actions according to whether the agreement met some standards relating to the degree of control or the amount of the reward the funder might receive under the agreement. It was not shown that apprehensions that the funder might improperly interfere with the conduct of the proceedings could not sufficiently be addressed by “existing doctrines of abuse of process and other procedural and substantive elements of the court’s processes”.’(footnotes omitted)In Wily Barrett J at [42] opined that it was a clearly impermissible purpose for a liquidator to conduct a dress rehearsal for cross-examination or to seek to assemble material in order to attack a potential witness’s credit. No such impermissible purpose is apparent in the circumstances of this case. Furthermore, one must not overlook Street J’s observation in Re Hugh J Roberts Pty Ltd that testing the reliability of an examinee from who information is being obtained can be a legitimate use of the examination power.Background facts

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

GRAHAM J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: GRAHAM J

Messrs. McDonald, Myers and Chapman submit that the summons directed to them should be discharged because Mr Crouch is ‘hopelessly conflicted’. It is submitted that he cannot properly act in the interests of the creditors and contributories of Tumut whilst he is serving as a joint liquidator with Ms Amirbeaggi in respect of Merilbah.The conflict upon which Messrs McDonald, Myers and Chapman rely is founded upon Mr Crouch’s ‘competing’ interests, as liquidator of Tumut, and, at the same time, as a joint liquidator of Merilbah. As liquidator of Tumut his inquiries relate to the debts owed by the taxpayers/investors/growers to Tumut and the possible assignment thereof to Core Finance Pty Limited and/or Symsung Pty Limited and/or Treetop Projects Limited. He wishes to ascertain whether the assignments may have been ineffective or otherwise invalid.Wearing his hat as a joint liquidator of Merilbah it is said that Mr Crouch’s interest is in establishing the effectiveness and validity of the assignments of the several debts to Core Finance Pty Limited and/or Symsung Pty Limited and/or Treetop Projects Limited such that Merilbah validly acquired and thereby became the owner of the relevant choses in action, which it was then able to validly assign to HP Mercantile Pty Limited.Secondly, they submit that the proposed means of funding Mr Crouch’s costs and expenses in undertaking the proposed examinations of them is an improper exercise of the powers of the liquidator of Tumut.Thirdly, they submit that each of the summons is too wide in terms of the books the production of which is sought in that they travel beyond books that relate to Tumut or to any of its examinable affairs. In this regard they submit that the summons are so expressed as to indicate that Mr Crouch is seeking to use the summons for a collateral and impermissible purpose. They assert that two of the three examinees are presently persons who have provided affidavits for use in proceedings in the District Court of New South Wales in which HP Mercantile Pty Limited is plaintiff and Tumut is a defendant.Fourthly, they submit that the summons call for the production of books that do not relate to Tumut or to any of its examinable affairs and are simply personal documents of the individuals.Fifthly, they submit that the summons have not been issued in the interests of the creditors or contributories of Tumut and that there is no relevant public interest in having the individuals named therein examined.Consideration It must be borne in mind that the examinations to which the summons relate do not form part of any contested inter-partes proceedings. The primary role of a liquidator conducting an examination is to investigate the facts that bear upon the examinable affairs of the relevant company as best he can, and the reliability of those who give sworn evidence about those facts. What is revealed may provide the foundation for a decision to commence, or to proceed with existing, litigation or to refrain from so doing. The facts as revealed may provide a basis for claims to be made which will be met without the necessity for any litigation.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1836 of 2008

JUDGE:	GRAHAM J
DATE OF ORDER:	11 DECEMBER 2009
WHERE MADE:	SYDNEY