In the Matter of Modern Woodcraft Pty Ltd (in liq) The Application of Silvia, Brian Raymond
[1997] FCA 712
•13 JUNE 1997
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE - Contempt of Court - requirement ordered by Court under s 597A of Corporations Law that examinable officers of company in liquidation file affidavits within stipulated period after service of orders - non-compliance because of advice given by officers’ solicitor that orders not valid - on hearing liquidator abandons application for punitive order and seeks only finding of contempt and order for costs - effect of omission from order served of warning of imprisonment or sequestration pursuant to O 37 subr 2(3) - whether finding of contempt can be made where moving party seeks only such finding and order for costs - whether liquidator discharged onus of proving absence of reasonable excuse on part of examinable officers.
CORPORATIONS LAW - requirement under s 597A of Law to file affidavits within fourteen days of service of orders - whether orders oppressive - whether order under s 597A can require examinable officer to conduct investigations in order to provide information specified in order or whether officer may be required only to answer on basis of unaided knowledge and recollection - relationship between ss 596A (providing for oral examination) and s 597A - whether period of fourteen days oppressively short - whether a requirement made by Court under s 597A for filing of affidavit may be set aside on ground of oppressiveness - whether requirement an abuse of process by reason of requiring examinable officer to provide information on affidavit to assist liquidator in pursuing a separate proceeding brought in name of company in liquidation against the examinable officer.
Corporations Law, ss 596A, 596B, 597A
Federal Court Rules, O 37 r 2Windsurfing International Inc v Sailboards Australia Pty Limited (1986) 19 FCR 110
Bourke Shire Council v Dwyer (1993) 79 LGERA 185
AMIEU v Mudginberri (1986) 161 CLR 98
Coonan & Denlay Pty Limited v Super Star Australia Pty Limited (No 2) (1981) 57 FLR 110
Perkes v Landon (1988) 15 NSWLR 408
McIntyre v Perkes (1988) 15 NSWLR 417
Riley McKay Pty Limited v Bannerman (1977) 31 FLR 129
Melbourne Home of Ford Pty Limited v Trade Practices Commission and Bannerman (No 2) (1979) 40 FLR 428
Melbourne Home of Ford Pty Limited v Trade Practices Commission and Bannerman (No 3) (1980) 147 FLR 163
Pyneboard Pty Limited v Trade Practices Commission (1982) 57 FLR 368
Dunlop Olympic Limited v Trade Practices Commission (1982) 62 FLR 145
Re Hugh J Roberts Pty Ltd (1969) 91 WN (NSW) 537
Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512IN THE MATTER OF: MODERN WOODCRAFT PTY LIMITED (IN LIQUIDATION)
AUSTRALIAN COMPANY NO: 000 273 816NG 3047 of 1997
LINDGREN J
SYDNEY
13 JUNE 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 3047 of 1997 ) GENERAL DIVISION ) IN THE MATTER OF: MODERN WOODCRAFT PTY LIMITED (IN LIQUIDATION)
AUSTRALIAN COMPANY NO: 000 273 816THE APPLICATION OF
BRIAN RAYMOND SILVIA
JUDGE: LINDGREN J PLACE: SYDNEY DATED: 13 JUNE 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
(1)The notice of motion of Warwick Dowling Nott, Giuseppe di Francesco, Gordon David Gouge-Merrall and Sergio Nogarotto filed 10 April 1997 (“10 April notice of motion”) be dismissed.
(2)The applicants to the 10 April notice of motion pay the costs of the respondent, Modern Woodcraft Pty Limited (In Liquidation) of the 10 April 1997 notice of motion.
(3)The notice of motion of Brian Raymond Silvia filed 15 April 1997 (“15 April notice of motion”) be dismissed.
(4)There be no order as to the costs of the 15 April notice of motion to the intent that the parties to it bear their own respective costs of it.
(5)The notice of motion of Warwick Dowling Nott, Giuseppe di Francesco and Gordon David Gouge-Merrall filed 14 May 1997 (“14 May notice of motion”) be dismissed.
(6)The applicants to the 14 May notice of motion pay the costs of the respondent Modern Woodcraft Pty Limited (In Liquidation), of the 14 May notice of motion.
(7)The time for compliance with Order 1 of the Orders under s 597A of the Corporations Law made on 2 May 1997 against each of the applicants to the 14 May notice of motion be extended to 25 July 1997.
(8)There be liberty to apply in respect of Order 7.
(9)There be liberty for either party to apply for a stay on 24 hours’ notice.
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 ) NG 3047 of 1997 ) GENERAL DIVISION ) IN THE MATTER OF: MODERN WOODCRAFT PTY LIMITED (IN LIQUIDATION)
AUSTRALIAN COMPANY NO: 000 273 816THE APPLICATION OF
BRIAN RAYMOND SILVIA
JUDGE: LINDGREN J PLACE: SYDNEY DATED: 13 JUNE 1997 REASONS FOR JUDGMENT
INTRODUCTION
There are before the Court three motions. I will refer to the nature of them in due course.
BACKGROUND
The applicant (“the Liquidator”) is the liquidator of Modern Woodcraft Pty Limited (in liquidation) (“the Company”). He was appointed as liquidator on 16 April 1993. On 26 February 1997, he filed the application by which the present proceeding was commenced. By the application he sought orders under, inter alia, ss 596A and 597A of the Corporations Law (“the Law”). Those sections were inserted in Division 1 of Part 5.9 of the Law by the Corporate Law Reform Act 1992 (Cth) (Act No 210 of 1992) with effect on and from 23 June 1993. They are concerned respectively with the oral examination of, and filing of affidavits by, “examinable officers” of a corporation about its “examinable affairs”, pursuant to an application to the Court made by an “eligible applicant” (the quoted expressions are defined in s 9 of the Law).
The present case turns substantially on s 597A which is as follows (s 596A is set out later in these Reasons):
“597A(1) The Court is to require a person to file an affidavit about a corporation's examinable affairs if:
(a)an eligible applicant applies for the requirement to be made; and
(b)the Court is satisfied that the person is an examinable officer of the corporation or was such an officer during or after the 2 years ending:
(i)if the corporation is under administration - on the section 513C day in relation to the administration; or
(ii)if the corporation has executed a deed of company arrangement that has not yet terminated - on the section 513C day in relation to the administration that ended when the deed was executed; or
(iii)if the corporation is being, or has been, wound up - when the winding up began; or
(iv)otherwise - when the application is made;
even if the person has been summoned under section 596A or 596B for examination about those affairs.
(2) The requirement is to:
(a)specify such of the information requested in the application as relates to examinable affairs of the corporation; and
(b)require the affidavit to set out the specified information; and
(c)require the affidavit to be filed on or before a specified day that is reasonable in the circumstances.
(3)A person must not, without reasonable excuse, refuse or fail to comply with a requirement made of the person under subsection (1).
(4)The Court may excuse a person from answering a question at an examination about corporation's examinable affairs if the person has already filed an affidavit under this section about that corporation's examinable affairs that sets out information that answers the question.”
The legislation refers to that for which the section provides as the making of a “requirement” rather than the more familiar making of an “order”. This leads to difficulty of expression as is clear from subs 597A(2). I will use the term “order”. The Liquidator sought orders under ss 596A and 597A addressed to Messrs W D Nott, Mr G di Francesco, Mr G D Gouge-Merrall and Mr S Nogarotto. Messrs Nott, di Francesco and Gouge-Merrall were the directors of the Company, and Mr Nogarotto was the secretary, when the order was made for its winding up.
The Company carried on business as a joinery contractor specialising in commercial fit-outs. It formed part of a group of companies called “the Multi-Way Group" in which the holding company was Multi-Way Group Pty Limited. The Multi-Way Group's main trading activity, in addition to that carried on by the Company, was the operation of a group of motels. These were owned and operated by Sovereign Motor Inns Pty Limited (“Sovereign”) and Comserv (No 1877) Pty Limited ("Comserv"). From 1 July 1989 down to the time of its being wound up on 16 April 1993, the Company supplied goods and services to Sovereign and Comserv. For this it was paid some $1,024,000, leaving a balance at the time of the winding up of some $1,070,000. Messrs Nott, Gouge‑Merrall and di Francesco were also the directors of Sovereign and Comserv and Mr Nogarotto was also the secretary of those companies.
The Liquidator alleges that the three directors, in breach of various duties owed by them to the Company, caused it to confer benefits on Sovereign and Comserv to the disadvantage of the Company’s unsecured creditors. In December 1994, in proceeding number 4774 of 1994 in the Equity Division of the Supreme Court of New South Wales (the “Supreme Court proceeding”), he caused the Company as plaintiff to sue the three directors, together with Sovereign and Comserv, seeking recovery of a sum of $1,069,951.28. The statement of claim in the Supreme Court proceeding is in evidence. I need not give a detailed account of the causes of action pleaded in it. It refers to numerous transactions extending over a period of years which are particularised in thirty-three closely typed pages. The Liquidator has been seeking, by means of, inter alia, the orders sought in his application against the four officers, to elicit information to assist him in the prosecution of the Supreme Court proceeding. Those officers are the most obvious sources from which the information needed by the Liquidator may be obtained.
I return to the course of events in the present proceeding. On 7 March 1997 Deputy District Registrar Hedge made the orders sought by the Liquidator in his application, including the orders under ss 596A and 597A against the officers. The four orders under s 597A required the respective officers to file in the Registry of the Court within twenty-eight days after service of the orders upon them respectively, affidavits setting out the information described in the schedule to the orders. That schedule was, in each case, as follows:
“During the period 1 July 1989 to 25 March 1993 did Modern Woodcraft Pty Limited ("the company") provide materials or services or pay for the provision of material or services to Sovereign Motor Inns Pty Limited ("Sovereign") or Comserv (No.1877) Pty Limited ("Comserv")?
If so, identify each such occasion, stating:
(a)to which of Sovereign or Comserv the materials or services were provided;
(b)the date when the materials or services were provided;
(c)the precise nature and amount of the materials or services provided;
(d)the identity of any supplier or subcontractor from whom the materials or services were obtained;
(e)the location at which the materials or services were provided;
(f)who authorised the provision of the materials or services on behalf of the company;
(g)who requested the provision of the materials or services on behalf of Sovereign or Comserv;
(h)whether the provision of the materials or services was undertaken in accordance with an agreement made on behalf of the company and, if so, the nature and terms of that agreement including any price agreed to be paid;
(i)which, if any, of Warwick Nott, Guiseppe Di Francesco and Gordon Gouge-Merrall consented to the provision of the materials or services, describing the manner and circumstances in which that consent was obtained;
(j)the date and amount of any payment by Sovereign or Comserv for the provision of the materials or services.”
The orders included the following on their face:
“2.Subsection 597A(3) of the Corporations Law provides that a person must not, without reasonable excuse, refuse or fail to comply with a requirement made of the person under subsection 597A(1).” (underlining supplied)
The four orders under s 596A required the respective officers to attend for examination at 10.15 am on 24 April 1997. As will be seen, only Mr Nogarotto has been examined to date.
On 13 March the orders were served on all but Mr Gouge-Merrall. The order addressed to him was served on 14 March. Therefore, the twenty-eight day period for the filing of the affidavits expired, in three cases on 10 April, and in the case of Mr Gouge-Merrall on 11 April.
It becomes important to see what occurred following service of the orders. The reason is that one of the motions with which I am called upon to deal is a motion by the Liquidator seeking a finding of contempt of the Court arising out of the officers’ failure to file affidavits within the twenty-eight day period as ordered.
On 12 March 1997 Messrs Lane & Lane, the solicitors for the Liquidator, forwarded to Messrs Turtons, solicitors for the four officers, copies of the orders under ss 596A and 597A. On 14 March 1997 Turtons replied as follows:
“We refer to your letter dated 12 March 1997.
Orders under section 597A
........ ........ ........ ........ ........ ........ ........
We are presently taking instructions, but we put you on notice that our clients object to the form of the questions set out in the Schedule to the orders. The basis of the objection is that they are incapable of being answered in any way which will assist the liquidator. The transactions referred to are numerous, and took place up to eight years ago, and the questions asked are too specific.
Under the circumstances it is unreasonable to expect that a director of the company would be able to answer such questions. The questions appear to have been drafted for the sole purpose of causing embarrassment to our clients in circumstances where they are defendants to an action by the company in liquidation relating to the same transactions. This is not a proper purpose for requesting an order under section 597A of the Corporations Law, and so the orders are, in our view, liable to be set aside.
We are considering the options available to our clients, which may include filing an application to have the orders set aside, with costs, unless your client agrees to have the orders set aside by consent.
Summons to attend examination under section 596A
In the meantime, we note that the examinations are listed for 24 April 1997. Mr Nott is not available on that date, as he will be overseas between 16 and 27 April inclusive. This was booked and paid for in February, before any suggestion of an examination was made. Accordingly, we request that his examination be adjourned until sufficient time after 27 April for us to take instructions and advise Mr Nott after his return. We suggest that the adjournment be for two weeks.
Please obtain your client’s instructions and advise us as soon as possible.”
On 17 March 1997, Lane & Lane replied. I need deal henceforth only with the correspondence in so far as it relates to the orders under s 597A. In this respect Lane & Lane advised:
“Orders under section 597A
We do not agree that the matters you have put forward provide a basis upon which these orders ought to be set aside.
First of all, we do not agree that it is any basis for objection to the order that ‘the questions asked are too specific’ nor that the transactions ‘are numerous and took place up to eight years ago’.
Secondly, we do not agree that what is described by you as being the basis for your objection is in fact an objection which is open to your clients to take; namely that the questions asked of your clients ‘are capable of being answered in any way which will assist the liquidator. The liquidator wishes to have the answers to his questions and then himself to have the opportunity to evaluate the extent to which those answers do in fact assist him in his statutory functions.
Thirdly, the purpose of the orders against your clients is not to cause embarrassment to them, rather it is for the purpose that the liquidator may be properly informed by the company's directors as to the transactions and affairs of the company while it was under the management of your clients.
Accordingly, our client requires compliance by the former directors with the section 597A orders. Any application for the setting aside of those orders will be opposed."
On 18 March, Turtons wrote to Lane & Lane advising that they were still reviewing the authorities and would make a decision “very shortly” on whether an application to set aside would be made. On 24 March, Lane & Lane replied, again denying that the officers had any entitlement to have the orders under s 597A set aside.
On 10 April, the officers filed a notice of motion returnable on 18 April seeking the following orders:
“1.The order under section 597A of the Corporations Law made on 7 March 1997 against the applicant [sic] to be set aside.
2.The order under section 597A of the Corporations Law made on 7 March 1997 against the applicant [sic] to be stayed pending the hearing of this notice of motion.
3.Costs.”
The officers did not seek a temporary stay as foreshadowed in order 2, and the period of twenty-eight days fixed by the orders expired without the filing of any affidavits. The Liquidator says that this gave rise to a contempt. It will be noted that the officers' notice of motion was filed virtually at the expiry of the period allowed for compliance.
Five days later, on 15 April, the Liquidator filed a notice of motion returnable on 16 May, seeking orders that the four officers “be found guilty of contempt of court” and committed to imprisonment for disobedience to the orders.
The next day, 16 April, Turtons wrote to Lane & Lane confirming a telephone conversation earlier that same morning to the effect that they had advised their clients that their earlier advice to them in relation to the form of the questions attached to the orders under s 597A was not correct and that the questions had to be answered after all. Turtons advised that they were, accordingly, preparing affidavits for Messrs Gouge-Merrall, di Francesco and Nogarotto to be filed and served the following Tuesday, if not earlier. In relation to Mr Nott, they advised that he was overseas and that his affidavit would be filed in early May.
On 22 April, affidavits of Messrs Gouge-Merrall, di Francesco and Nogarotto were filed. On 19 May, the affidavit of Mr Nott was also filed.
It seems fair to say that the affidavits as filed were limited by reference to the actual knowledge and recollection at the time of the respective former officers. In particular, they had not been aided by reference to the records of the Company, Sovereign, or Comserv, with a view to their providing ample and detailed information in response to the questions set out in the schedule to the orders. One of the issues which has divided the parties on the present hearing is whether an order under s 597A can properly call for information, the supply of which will require examinable officers to carry out investigations.
Being dissatisfied with the affidavits filed, on 30 April the Liquidator filed a notice of motion seeking further orders under s 597A addressed to the Company’s three directors, Messrs Nott, di Francesco and Gouge-Merrall, but not on this occasion to the Company secretary, Mr Nogarotto, who had, in the meanwhile, been examined on 24 April.
On 2 May 1997 Deputy District Registrar O'Neill made the further orders sought. On this occasion, the orders under s 597A required the filing of affidavits within fourteen days after service. The orders again called for the filing of affidavits setting out the information described in a schedule to the orders. This time, however, the schedule contained the following prefatory material:
"To the best of your knowledge, information and belief, after making all reasonable inquiries including consideration of:
(a)the books of account and other records of Sovereign Motor Inns Pty Limited (‘Sovereign’) and Comserv (No 1877) Pty Limited (‘Comserv’); and
(b)the copies of the books of account and other records of Modern Woodcraft Pty Limited (‘the company’) provided to the solicitors for Sovereign and Comserv in the course of Supreme Court Equity Division proceedings No 4774 of 1994:"
There followed questions in substantially the same form as those which had appeared in the schedule to the earlier orders. Clearly, the introductory words set out above were intended to make it clear that more was required than an affidavit limited by reference to the deponent’s unaided state of knowledge and recollection. The directors have contended that the orders require them to do more than that which may be demanded of them pursuant to s 597A.
On 14 May, the directors filed a notice of motion seeking orders that:
“(1)The orders under section 597A of the Corporations Law made on 2 May 1997 against each of the Applicants be reviewed.
(2)The orders under section 597A of the Corporations Law made on 2 May 1997 against each of the Applicants be set aside or discharged.
(3)Pending further order, the orders under section 597A of the Corporations Law made on 2 May 1997 be stayed.
(4)In the alternative to order 1, the time for filing affidavits as required by the orders under section 597A of the Corporations Law made on 2 May 1997 against each of the Applicants be extended for three months.”
Argument in relation to the various motions was heard on 23 and 27 May. It became clear on the hearing that the four officers were not pursuing the motion brought by the earlier notice of motion filed on 10 April 1997. It will be recalled that affidavits were filed in response to the earlier orders under s 597A, although they were filed late and did not satisfy the Liquidator.
THE CONTEMPT OF COURT MOTION
The Liquidator now seeks only an order finding the officers guilty of contempt and an order that they pay his costs, on an indemnity basis, of the contempt motion. He no longer seeks orders for their imprisonment.
There is no issue as to service of the notice of motion or the statement of charge of contempt. It is common ground also, as noted earlier, that the orders under s 597A were served on 13 and 14 March and that the time for compliance expired on 10 and 11 April 1997. Finally, it is, of course, common ground that the officers did not file affidavits as required until 22 April 1997 in three cases, and 19 May 1997 in the remaining case. I will address now the three issues which have arisen on the hearing of the motion for contempt.
Order 37 subr 2 (3)
The officers submit that there ought not to be a finding of contempt for the reason that O 37 subr 2(3) of the Federal Court Rules has not been complied with. Order 37 subrr 2(1) and (3) provide as follows:
“2(1)Subject to the rules, an order shall not be enforced by committal or sequestration unless -
(a)the order or a certified or office copy thereof is served personally on the person bound; and
(b)if the order requires the person bound to do an act within a specified time, the order or a certified or office copy thereof is so served before that time expires.
(2) ........ ........ ........ ........ ........ ........ .
(3)An order or a certified or office copy thereof served under this rule must bear a notice (naming the persons concerned) that the person served is liable to imprisonment or to sequestration of property if:
(a)where the order requires the person bound to do an act within a specified time, the person bound refuses or neglects to do the act within that time; or
(b)where the order requires the person bound to abstain from doing an act, the person bound disobeys the order.”
I can dispose of the present submission shortly. I think that subr 2(3) is directed only to the situation in which enforcement by imprisonment or sequestration is ultimately sought. Although subr 2(3) could be better expressed, it is clear, in my view, that it and subr 2(1) are addressed to the point of time at which the Court is asked to enforce an order by committal or sequestration. The expression “served under this rule” in subr 2(3) refers to a service which is relied upon for the purpose of the making of such an order. It remains possible, in my view, for a contempt of the Court to be committed even though the order served does not bear the endorsement referred to. This view is supported by Windsurfing International Inc v Sailboards Australia Pty Limited (1986) 19 FCR 110 (Burchett J) at 113 and Bourke Shire Council v Dwyer (1993) 79 LGERA 185 (Talbot J) at 186 (this case concerned the similar provision in Pt 42 subr 8(3) of the Rules of the Supreme Court of New South Wales).
Is it permissible for a finding of contempt to be made where the moving party seeks only that finding and an order for costs?
The Liquidator does not seek the sanction of a fine, imprisonment or sequestration. I think, however, that it is within the Court's power to make a finding of contempt where, as here, the moving party seeks only that finding and an order for costs. There may be circumstances in which such a finding and order represent an appropriate way of vindicating a court’s authority and disciplining a contemnor. The breadth of a court’s discretion in dealing with contempt has been recognised in such cases as AMIEU v Mudginberri (1986) 161 CLR 98 at 113, Coonan & Denlay Pty Limited v Super Star Australia Pty Limited (No 2) (1981) 57 FLR 110 (FC) at 129, Perkes v Landon (1988) 15 NSWLR 408 (Kearney J) and McIntyre v Perkes (1988) 15 NSWLR 417 (CA) at 423, 427 and 428. A moving party should not, in the absence of abuse of process, be disadvantaged vis-a-vis a contemnor, by reason of not having pressed for a punitive order. No abuse of process by the Liquidator is established in the present case.
Proof of contempt
It is common ground that the Liquidator bears the onus of establishing that the officers refused or failed to file their affidavits within twenty-eight days without reasonable excuse (see subs 597A(3)). In view of the seriousness of a finding of contempt, the proof must be clear. It is clear that the officers did not comply with what they understood to be a requirement of the Court in so far as it required the filing of affidavits within twenty-eight days. But the key to the answer to the question whether contempt is proved in the present case is, I think, to be found in the consideration that it is the alleged contemnors themselves who must be shown to have failed to comply without reasonable excuse. I do not think that, for this purpose, the conduct of the solicitors is to be attributed to the officers.
The evidence does not clearly show that the officers’ non-compliance was without reasonable excuse on their part. Contrary to the submission of counsel for the Liquidator, this is not “simply a black and white case of non-compliance”. It is reasonable to think that the officers would have filed within the twenty-eight day period the very affidavits which they in fact ultimately filed outside that period if their solicitors had advised them at the outset that they were obliged to file affidavits at all. It is really the solicitors’ fault that the affidavits were not filed within time. It is not shown that it was unreasonable for the officers to have relied on their solicitors’ advice.
I have reached the foregoing conclusion despite the fact that the evidence read on behalf of the officers is sparse. They have not filed affidavits as to the advice that was given to them. Nor has their solicitor. They have not sworn that they did not file their affidavits earlier because they accepted legal advice that they were not obliged to file affidavits. Nonetheless, it is clear from the correspondence, especially the letter from Turtons to Lane & Lane dated 16 April 1997, that this was the stance that they were taking. Although I feel somewhat ill at ease about the matter in view of the absence of clear affidavit evidence on the issue, I think that the Liquidator has not discharged the onus which he bears.
It follows that the contempt motion should be dismissed. [There ensued discussion about the costs of the motion]. I will stand the question of costs over to 2.15 pm today. By that time, perhaps the parties will have agreed on the order to be made. If not, I will hear submissions then and will decide the question of costs.
THE MOTION TO SET ASIDE
I turn next to the motion which challenges the orders under s 597A made on 2 May. The three directors make two principal submissions as to why those orders should be set aside. I will address these in turn.
Oppression
The directors seek to have the orders set aside on the ground that they are oppressive. They are said to be oppressive because, so it is submitted, the answering of the questions contained in the schedule to the orders would impose an inordinate burden upon the directors. According to the directors, the burden is inordinate because the questions seek information which is beyond their unaided state of knowledge and recollection, and because the period of fourteen days allowed for compliance is inadequate.
First, I will address the submission that the orders are oppressive because they seek information beyond the directors’ unaided state of knowledge and recollection. The directors submit that under s 597A the Court may only order the filing of an affidavit which sets out information that it would have been proper to elicit from the examinable officer to whom the order is addressed on an oral examination of him or her under s 596A. They further submit that under that section, such an officer in the witness box would not be in a position, then and there, to carry out an extensive investigation of corporate documents and that therefore it would not be permissible for him or her to be asked questions of the kind set out in the schedule to the current orders under s 597A.
Section 596A reads as follows:
“The Court is to 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 is an examinable officer of the corporation or was such an officer during or after the 2 years ending:
(i)if the corporation is under administration - on the section 513C day in relation to the administration; or
(ii)if the corporation has executed a deed of company arrangement that has not yet terminated - on the section 513C day in relation to the administration that ended when the deed was executed; or
(iii)if the corporation is being, or has been, wound up - when the winding up began; or
(iv)otherwise - when the application is made.”
I do not think that the directors’ attempt to limit the Court’s power under s 597A by reference to its power under s 596A should succeed. In the first place, there is no support to be found in the terms of the legislation for the suggested link. Subsection 597A(1) provides expressly that the Court may make an order under that subsection even if the person has been summoned under s 596A (or under s 596B). This at least suggests the possibility that a purpose of s 597A is to provide machinery for an examinable officer to provide information which he may not be able to provide conveniently in the course of an oral examination. An obvious example of such information is information which an examinable officer can obtain and provide, or do so efficiently, only after carrying out some investigation, checking, correlation, and, perhaps, assembly or compilation. While various provisions of the Law enable a liquidator to gain access to the “books” (defined widely in s 9) of a company (cf ss 477(3), 530A-530C), it would be extraordinarily inefficient and not entirely effective if, in order to obtain the sworn information about the examinable affairs of a company to which s 597A refers, the liquidator were limited to conducting an oral examination of the examinable officers under s 596A, questioning them about the documents for the first time in the witness box.
It seems to me that it is no objection to an order under s 597A that provision of the information specified in it will require an examinable officer to make inquiries in order to file the affidavit called for. It is only such an officer who is able to explain documents, relate them to each other and provide the background to them. If s 597A did not permit such officers to be required to review documents for the purpose of providing information on affidavit in a case such as the present, a liquidator might well be unable to pursue a complex claim of the kind being pursued in the Supreme Court proceeding.
The view that I have taken of s 597A receives some support from cases, admittedly turning on other statutory provisions, in which mandatory notices calling for the provision of information had been served and in which it was held that it was no objection that the recipient needed to conduct investigations in order to comply with the notices. The case most frequently referred to in the present context is Riley McKay Pty Limited v Bannerman (1977) 31 FLR 129 (Bowen CJ). There the former Chief Justice of this Court was dealing with a notice issued under s 155 of the Trade PracticesAct 1974 (Cth). That section provided, relevantly, as follows:
“155.(1)Where the Commission, the Chairman or the Deputy Chairman has reason to believe that a person is capable of furnishing information, ... relating to a matter that constitutes, or may constitute, a decision by the Commission under sub-section 93(3), a member of the Commission may, by notice in writing served on that person, require that person -
(a)to furnish to the Commission, by writing signed by that person or, in the case of a body corporate, by a competent officer of the body corporate, within the time and in the manner specified in the notice, any such information;”
At page 136 of the judgment, the Chief Justice said this:
“It is not, I think, a good ground of objection to a notice under s.155 that it is burdensome or oppressive. It is clear that when such a notice is given, the answering of it may involve the recipient in considerable work and expense. This, in itself, may constitute a kind of penalty whether or not there is ultimately found to have been a contravention. The legislation assumes that the public interest necessitates this. No doubt in practice, the commission will administer the Act in such a way as not to impose upon a person or company a burden completely disproportionate to the value to the commission of the information sought.”
That passage has been referred to with approval: see Melbourne Home of Ford Pty Limited v Trade Practices Commission and Bannerman (No 2) (1979) 40 FLR 428 (Smithers J) at 441-2; Melbourne Home of Ford Pty Limited v Trade Practices Commission and Bannerman (No 3) (1980) 147 FLR 163 (FC) at 173; Pyneboard Pty Limited v Trade Practices Commission (1982) 57 FLR 368 (FC) at 377; see also Dunlop Olympic Limited v Trade Practices Commission (1982) 62 FLR 145 (FC) at 149.
The directors have relied on several cases including Re Hugh J Roberts Pty Limited (1969) 91 WN (NSW) 537 (Street J) at 541-3; Re Compass Airlines Pty Ltd (1992) 35 FCR 447 (FC) at 452-3 (Lockhart J); and Hamilton v Oades (1989) 166 CLR 486 at 497-500 (Mason CJ). They relate to the statutory provision for oral examination found in earlier legislation and to the question of constraints affecting that procedure. With respect, in my view they lend no support to the present submission.
As noted earlier, the directors also claim that the orders are oppressive because they allow inadequate time for compliance. Subsection 597A(2) provides that an order under s 597A must require the affidavit in question to be filed “on or before a specified day that is reasonable in the circumstances”. Obviously, the nature and extent of investigation necessary in a particular case is relevant to the reasonableness of the period of time to be allowed.
In the course of the hearing, senior counsel for the directors suggested that six weeks rather than two weeks was an appropriate period. In correspondence between the parties, Lane & Lane, the solicitors for the Liquidator, stated that their client was prepared to consent to an extension of time for compliance. But the evidentiary position as to the reasonableness or unreasonableness of the time of fourteen days stipulated in the orders is quite unsatisfactory. There is no evidence as to the investigations necessary to be made by the officers, the extent of their present unaided knowledge and recollection, or generally as to the time that they will need, with or without assistance, to provide the affidavits.
The correspondence suggests that the parties had almost agreed upon an extension of time. The mere fact that the Liquidator was prepared to agree to an extension does not amount, without more, to a concession by him that the period of fourteen days was inadequate. I will stand the matter over to 2.15 pm today. It may be that the parties can reach agreement by then. If they fail to do so, they may wish to make further submissions on the present issue at that time.
Before addressing the second of the directors’ principal submissions, I should make it clear that even if I thought that the period of fourteen days fixed in the current orders under s 597A was inadequate, the directors would not succeed. The reason is that although the fixing of an unreasonably short period signifies that the order does not comply with par 597A(2)(c), I do not think that oppressiveness is a ground on which an order under the section may be set aside.
Several particular considerations support this view. The first is that, the burdensome nature of the order might well amount to a “reasonable excuse” for non-compliance with it for the purpose of subs 597A(3). A second consideration is to be found in s 597B which is as follows:
“597B Where the Court is satisfied that ... a requirement made of a person under section 597A, was obtained without reasonable cause, the Court may order some or all of the costs incurred by the person because of the ... requirement to be paid by:
(a)in any case - the applicant for the ... requirement; or
(b)........ ........ ........ ........ ........ ........ ”
In the present case, for example, if it were to emerge after affidavits had been filed that the Liquidator had obtained the particular fourteen day orders without reasonable cause, it would be possible for the directors to obtain an order that he pay some or all of their costs. For example, if the period of fourteen days allowed for compliance were found to be unreasonably short and the directors had incurred extra cost in order to meet that time limit, it might be appropriate that the Liquidator be ordered to pay the amount of those additional costs.
The provisions of subs 597A(3) and s 597B noted above afford protections to examinable officers against the fixing of oppressively short periods of time. The provision of these protections suggests that a setting aside on the ground of oppression was not intended to be available.
A third consideration is to be found in the background to the amendment of Part 5.9 of the Law effected by the Corporate Law Reform Act1992 (Cth). The amendments relating to compulsory examination originated with recommendations in the Australian Law Reform Commission's Report “General Insolvency Inquiry” (ALRC 45) (“the Harmer Report”). The amendments are dealt with in par 585 and following of the Harmer Report. The intention emerges from par 586, in particular, that the existing necessity (under s 597 of the Law) for a liquidator to persuade the Court to exercise its discretion to make an order for examination was to be eliminated and that, provided what the liquidator sought fell within the proposed new section, the Court was to be required to make the order for attendance for examination. That this is so is also borne out by pars 1152-1155 of the Explanatory Memorandum which accompanied the Corporate Law Reform Bill 1992 (Cth), in which it was said that the obtaining of an order for examination under s 596A was to be “a formality”. This description is no less applicable to the obtaining of an order for the filing of an affidavit under s 597A since that section is couched in mandatory terms relevantly identical to those of s 596A.
The scheme which has emerged as a result is that an “eligible applicant” (defined in s 9 of the Law) is entitled, upon application (a) to have the Court summon an “examinable officer” (also defined in s 9) for examination (s 596A) or to order him or her to file an affidavit (s 597A) about a corporation’s “examinable affairs” (also defined in s 9), and (b) to seek the exercise of the Court’s discretion to summon any other person for examination about those affairs upon satisfying the Court of certain matters (s 596B).
Provided an application is made under s 597A by an “eligible applicant” (this expression is defined to include a liquidator), what is applied for is an order in relation to an “examinable officer” (it is not in dispute that a director falls within this expression), and what is sought is an affidavit setting out specified information relating to a corporation’s “examinable affairs” (it has not been disputed that the orders in the present case seek such affidavits), the Court must make the order.
Abuse of process
Senior counsel for the directors submits that the orders under s 597A should be set aside because the Liquidator has invoked the statutory procedure for an improper purpose. The improper purpose nominated is the obtaining of information which the Liquidator needs in order to prosecute the case against the directors in the Supreme Court proceeding.
I do not say that there could never be an abuse of the procedure made available by s 597A, but I am not satisfied that there is in the present case. The Liquidator seeks the affidavits in order to assist him to provide particulars in the Supreme Court proceeding. The directors do not, however, suggest that the Supreme Court proceeding itself represents an abuse of process or that the Liquidator’s invocation of s 597A is otherwise than a bona fide attempt to assist him in the pursuit of that proceeding. The mere fact that information obtained by a liquidator can or will be used in another proceeding does not render the conduct abusive: Re Hugh J Roberts Pty Ltd (1969) 91 WN (NSW) 537 (Street J) at 540-541; Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 (CA) at 519-520. It takes the directors’ case no further, in my view, that they, as the examinable officers to whom the orders are directed, are also the defendants in the Supreme Court proceeding. I fail to see why this additional fact should deny to the Liquidator the obvious, and perhaps only, source of the information which he needs, or why it marks the Liquidator’s utilisation of the procedure under s 597A an abuse of process.
INTERIM CONCLUSION
I will not make orders now but will stand over all three motions to 2.15 pm this afternoon. It may be that by that time the parties will be able to provide consent orders. If not, I will hear submissions as to the appropriate orders to be made to give effect to my reasons and I will resolve the outstanding matters at that time. The proceeding will stand down to 2.15 pm.
[HEARING RESUMED AT 2.15 PM]
The parties have handed up short minutes of proposed orders which are agreed except in two respects. The effect of pars 1, 2, 3, 5 and 6 is that all three motions are dismissed and the four officers or the three directors, as the case may be, are to pay the Liquidator’s costs of the two motions brought by them respectively. Paragraph 4, which has not been agreed, is to provide for the costs of the contempt motion brought by the Liquidator. Paragraph 7 is to provide for an extension of the time for compliance with the three orders under s 597A made on 2 May 1997 for a period which also has not been agreed.
Costs of Liquidator’s contempt motion
The four officers have succeeded on the contempt motion. Normally costs would follow the event, that is to say, the Liquidator would be ordered to pay their costs. In the present case, however, I am of the opinion that there are special circumstances which call for a departure from the usual course.
The first motion to set aside filed by the officers was withdrawn or, at least, they gave notice of their intention not to proceed with it, shortly after the Liquidator's notice of motion for contempt was filed. It is difficult to avoid the impression that Turtons wrote their letters to Lane & Lane and filed the notice of motion on behalf of the officers “as a holding measure” while they were investigating the matter. It would seem proper to proceed on the footing that there never was any substance in the contention initially made by the officers that the original orders under s 597A were invalid. But until 16 April, they led the Liquidator to believe that those orders would not be complied with. It was on 16 April, after the Liquidator's notice of motion for contempt had been filed, that they took the stance that they would no longer seek to set aside the orders, and it was shortly afterwards that three of the four affidavits were filed.
On the other hand, the Liquidator wrongly pursued his motion in its original form down to the day of the commencement of the hearing before me. I say “wrongly” by reference to the non-compliance with O 37 subr 2(3) which would have disabled him from obtaining the order for imprisonment which he was seeking. As senior counsel for the officers has said, his clients were led to oppose the motion, and were entitled to oppose it, at least down to that time.
Nevertheless, I think that the officers' side has contributed to the costs by their conduct in taking a stance which was not supported, at least for a time. All things considered, I think that the appropriate order is that there be no order as to costs, my intention being that the parties bear their own respective costs of the Liquidator's motion brought by notice of motion filed 15 April 1997.
Extension of time for compliance by directors with orders under s 597A made on 2 May 1997
The Liquidator and the directors have agreed that the existing orders are to be varied by way of an extension of the time for compliance, but they disagree as to the appropriate period. As I observed earlier, the evidence as to what is a reasonable time is unsatisfactory if, indeed, “evidence” is an appropriate word to use. I was more persuaded by what senior counsel for the directors said from the bar table than by anything in the affidavits that were read.
Although senior counsel for the directors has directed my attention to six large boxes which are in Court, without affidavit evidence indicating precisely what documents they contain and what work has to be done on those documents, it is difficult to know what to make of them. For all I know a substantial volume of the material in the boxes may be irrelevant and may be immediately recognisable as such. There are other matters to be considered, such as the position of the four officers in terms of their other commitments and how much time is available to them. There is also the question whether they are able to undertake the task individually, or whether they need to be together at the same time. I know nothing as to the time required to assemble and express the results of the investigation carried out.
The point that I seek to make is that in order to make a finding that any particular time is unreasonable or reasonable, the Court needs to have affidavit evidence. The Liquidator says “four weeks from now” and the directors say “eight weeks from now” would be reasonable. I propose to settle upon “six weeks from now”. I wish to make it clear that I am not finding that the period of fourteen days fixed in the orders is unreasonable. I am proceeding on the basis of the parties’ agreement that there is to be some extension and of the submissions made from the bar table. On this basis, I will vary the time fixed in the current orders to a date which will be six weeks after today’s date, that is, 25 July 1997. I reserve liberty to apply.
I make orders in terms of paragraphs 1, 2 and 3 of short minutes of orders. In place of existing par 4 there will be this: “There be no order as to the costs of the 15 April notice of motion to the intent that the parties to it bear their own respective costs of it.” I make orders 5, 6 and 7 of the short minutes with the date 25 July 1997 inserted in par 7.
[There followed discussion about a stay]. I reserve liberty to either party to apply for a stay on twenty-four hours’ notice.
I certify that this and the preceding (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren Associate:
Dated: 1 August 1997
Counsel for the Applicant: Mr S R Epstein Solicitor for the Applicant: Messrs Lane & Lane Counsel for the Respondent: Mr P M Jacobson QC Solicitor for the Respondent: Messrs Turtons Date of Hearing: 23 and 27 May, 13 June 1997 Date of Judgment (ex tempore): 13 June 1997
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